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Schedule F Creditors Holding Unsecured Nonpriority Claims Updated for 12

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					                 American Bar Association
                   Business Law Section
Ad Hoc Committee on Bankruptcy Court Structure and Insolvency
                        Processes


                    Task Force on Attorney Discipline
                     Best Practices Working Group




                             Working Paper:
                  Best Practices for Debtors’ Attorneys




                               February 26, 2008




The views expressed herein have not been adopted by the House of Delegates or the
Board of Governors of the American Bar Association and consequently should not be
considered the policy of the American Bar Association.




                                         1
                             Best Practices Working Group


                                 James H. Cossitt, Chair
                              Attorney & Counselor at Law
                                      202 KM Bldg.
                                  40 Second Street, East
                               Kalispell, MT 55901-4563

                              Catherine E. Vance, Reporter
                              Development Specialists, Inc.
                                 6375 Riverside Drive
                                       Suite 200
                                  Dublin, OH 43017


David Allard                                       Karen M. Oakes
Allard & Fish, P.C.                                Law Office of Karen M. Oakes, P.C.
2600 Buhl Building                                 6502 South Sixth Street
535 Griswold Street                                Klamath Falls, OR 97603
Detroit, MI 48226

Katherine R. Catanese                              Jan Ostrovsky
Allard & Fish, P.C.                                Crocker Kuno Ostrovsky, LLC
2600 Buhl Building                                 720 Olive Way
535 Griswold St.                                   Suite 1000
Detroit, MI 48226                                  Seattle, WA 98101-2509

Jimmy Dahu                                         Marc S. Stern
King & Spalding, LLP                               Attorney at Law
1100 Louisiana, Suite 4000                         1825 N.W. 65th Street
Houston, TX 77002                                  Seattle, WA 98117




                                           2
                        SUMMARY TABLE OF CONTENTS


                                    Section                                  Page

1. Introduction                                                               6

2. Voluntary Petition                                                         18

3. Schedule A: Real Property                                                  25

4. Schedule B: Personal Property                                              26

5. Schedule D: Creditors Holding Secured Claims; Schedule E: Creditors        38
          Holding Unsecured Priority Claims; Schedule F: Creditors Holding
          Unsecured Nonpriority Claims

6. Schedule G: Executory Contracts and Unexpired Leases                       42

7. Schedule H: Codebtors                                                      44

8. Schedule I: Current Income of Individual Debtor(s); Schedule J: Current    45
          Expenditures of Individual Debtor(s)

9. Statement of Financial Affairs                                             57

10. Form 22A: Chapter 7 Statement of Current Monthly Income and Means-        73
           Test Calculation
                               TABLE OF CONTENTS


                                    Section                                  Page

1. Introduction                                                                6
        1.1. Scope and Purpose of the Best Practices Working Paper             6
               1.1.1. Working Paper vs. Report                                 6
               1.1.2. Content and Recommendations                              7
               1.1.3. Audience                                                 9
        1.2. Organization; Key Terms                                           9
        1.3. Legal Standard: Reasonably Inquiry                               10
        1.4. Other Applicable Legal Standards                                 12
               1.4.1. Generally                                               12
               1.4.2. Judicial Standards on Disclosure                        12
               1.4.3. “Primarily Consumer Debts”                              16

2. Voluntary Petition                                                         18

3. Schedule A: Real Property                                                  25

4. Schedule B: Personal Property                                              26

5. Schedule D: Creditors Holding Secured Claims; Schedule E: Creditors        38
Holding Unsecured Priority Claims; Schedule F: Creditors Holding Unsecured
Nonpriority Claims
       5.1. General Comments and Inquiry Recommendations                      38
       5.2. Comments on Schedule D                                            39
       5.3. Comments on Schedule E                                            40
       5.4. Comments on Schedule F                                            41

6. Schedule G: Executory Contracts and Unexpired Leases                       42

7. Schedule H: Codebtors                                                      44

8. Schedule I: Current Income of Individual Debtor(s); Schedule J: Current    45
Expenditures of Individual Debtor(s)
       8.1. General Comments                                                  45
       8.2. Schedule I: Current Income of Individual Debtor(s)                47
       8.3. Schedule J: Current Expenditures of Individual Debtor(s)          51

9. Statement of Financial Affairs                                             57

10. Form 22A: Chapter 7 Statement of Current Monthly Income and Means-        73
Test Calculation


                                              4
10.1. Introduction                                              73
10.2. Who Must Complete Form 22A?                               73
            10.2.1. “Primarily Consumer Debts”                  74
            10.2.2. Conversion from Chapter 13                  74
            10.2.3. Exclusion for Certain Disabled Veterans     74
10.3. Note on January 2008 Amendment to Form 22A                75
10.4. Form 22A: Chapter 7 Statement of Current Monthly Income   76
      and Means-Test Calculation




                                5
                                                Section 1
                                               Introduction


On September 20, 2005, the Task Force on Attorney Discipline, which operates under the
authority of the American Bar Association’s Business Law Section’s Ad Hoc Committee
on Bankruptcy Court Structure and Insolvency Processes, issued its Report on Attorney
Liability under § 707(b)(4) of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (the “Task Force Report on § 707(b)(4)” or “Report”).1 That
report provided general recommendations in the interpretation of key words and phrases
in new §§ 707(b)(4)(C)2 and (D),3 which became law via the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (“BAPCPA”), including:

    •    “reasonable investigation”
    •    “inquiry”
    •    “knowledge”
    •    “incorrect”

This Working Paper on Best Practices for Debtors’ Attorneys (“Best Practices Working
Paper” or “Working Paper”) is a continuation of that initial effort. The Best Practices
Working Group (or the “Working Group”) was formed to examine both the legal
standards and practical considerations for attorneys representing clients who may become
debtors under the Bankruptcy Code (the “Code”)4 and to present recommendations as to
what constitutes “best practices” in the preparation of a bankruptcy case.




1
  Task Force on Attorney Discipline, Ad Hoc Comm. on Bankr. Court Structure and Insolvency Processes,
Attorney Liability Under Section 707(b)(4) of the Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005, 61 Bus. Law. 697 (2006). The report is available at
http://www.abanet.org/media/youraba/200602/article06.html.
2
  Section 707(b)(4)(C) provides: “The signature of an attorney on a petition, pleading, or written motion
shall constitute a certification that the attorney has --
          (i)       performed a reasonable investigation into the circumstances that gave rise to the petition,
          pleading, or written motion; and
          (ii)      determined that the petition, pleading, or written motion --
                    (I)       is well grounded in fact; and
                    (II)      is warranted by existing law or a good faith argument for the extension,
                    modification, or reversal of existing law and does not constitute an abuse under paragraph
                    (1).”
3
  Section 707(b)(4)(D) provides: “The signature of an attorney on the petition shall constitute a
certification that the attorney has no knowledge after an inquiry that the information in the schedules filed
with such petition is incorrect.”
4
  Unless otherwise noted, all sections cited herein refer to the Bankruptcy Code, 11 U.S.C. § 101 et seq.


                                                      6
1.1. Scope and Purpose of the Best Practices Working Paper

         1.1.1. Working Paper vs. Report

        The Best Practices Working Group considered at some length whether this effort
should culminate in a working paper or a report. The distinction is an important one. In
general terms, a report is intended to be authoritative, while a working paper is intended
to create a basis for further discussion or debate.

        The Working Group decided that a working paper was the better approach for two
key reasons. The first reason concerns consequences that could result in producing a
report. As an authoritative text, a report could create a “one size fits all” approach to
debtor representation, which serves neither attorneys nor their clients well. Attorneys
must have the flexibility needed to deal with the unique circumstances their clients
present.

       The Best Practices Working Group was also cognizant that a report could
inadvertently create minimum standards that would serve as a basis for attorney liability.
As discussed below, Rule 9011 is a critical governing authority and the Working Group
sought to avoid designating specific inquiries or document reviews as required in order to
meet the Rule 9011 standards.

         The second reason for choosing to craft a working paper rather than a report is to
serve the very purpose intended: to create a basis for discussion among debtors’
attorneys. Even within the small community of the Best Practices Working Group, issues
arose that generated robust disagreement and some of the recommendations included in
the Working Paper are the result of compromise. The Working Group prefers to expand
the discussion and is confident that the debtors’ bar will agree with this paper’s goals of
maintaining high standards among seasoned practitioners and assisting attorneys new to
bankruptcy practice in preparing a high-quality work product. These goals serve not just
clients, but also the standards of professionalism expected of attorneys.5

       Because the case law related to the topics discussed in this Working Paper is
constantly evolving, especially with regard to the means test and the changes
encompassed in BAPCPA, the citations provided herein should always be updated and
shepardized before utilizing them to support a legal position. Additionally, this Working
Paper does not provide every case cited with regard to each legal issue, but rather
provides some of the significant cases decided on the legal topics contained within the
Working Paper.

         1.1.2. Content and Recommendations

        The scope of this Working Paper is narrow. The Working Paper examines only
the various forms that are required of bankruptcy debtors, specifically:

5
  It should go without saying that nothing in this Working Paper is intended to supplant authorities, such as
state ethical rules, governing attorney conduct.


                                                      7
    •   The Petition6
    •   Schedules A, B and D through J7
    •   The Statement of Financial Affairs
    •   Form 22A8

        The Best Practices Working Group’s goal is to make recommendations regarding
matters into which attorneys should inquire to ensure legally sufficient disclosure of
information in the filing of a non-emergency bankruptcy case.9 The Working Group also
makes suggestions regarding the types of documents attorneys can review to obtain
information for disclosures about which the client is uncertain or to verify, where needed,
the information the client has provided.

       Excluded from the Best Practices Working Paper is advice on attorneys’
representation of their debtor clients. The information clients provide can raise any
number of issues the resolution of which requires an attorney’s skill and expertise to
resolve. Such issues and their resolution are well beyond the scope of this Working
Paper, although some “practice pointers” are provided along the way.


6
  For the purposes of the Best Practices Working Paper, the Best Practices Working Group utilized the
petition and schedules revised in April 2007.
7
  The Best Practices Working Group chose not to include Schedule C within this Working Paper. Although
there are exceptions, a good deal of Schedule C preparation turns on state law and there are significant
differences among the states in the types and amounts of property that may be exempted. The Best
Practices Working Group does note that proper inquiry as described in this Working Paper with respect to
Schedules A and B is a precursor to declaring exemptions. The legal standard for disclosure discussed in
Section 1.4.2., however, may not apply, as some courts require greater specificity when exempting property
than when disclosing it. See In re Park, 246 B.R. 837, 842 (Bankr. E.D. Tex. 2000) (discussing the
requirement of full disclosure in bankruptcy schedules and later noting that “[t]he required degree of
specificity increases when itemizing property that is claimed as exempt under section 522.”); In re
Mohring, 142 B.R. 389, 394-95 (Bankr. E.D. Cal. 1992) (same).
8
  The Best Practices Working Group chose not to include Forms 22B and 22C in this Working Paper for a
variety of reasons. The 22B form is the simplest of the means testing forms and is used for debtor’s filing
for chapter 11, requiring only the calculation of the debtor’s CMI and the debtor’s signature of the
verification, so a detailed analysis of this form would be of limited usefulness. The 22C form is very
similar to the 22A form in that it also requires determination of the debtor’s CMI, but the form is used to
determine the debtor’s commitment period and projected disposable income in a chapter 13. A detailed
discussion of these two forms in greater detail is beyond the scope of this Working Paper.
9
  Although the Best Practices Working Group does not address emergency filings, it concurs with the
following as a recommendation of what, at a minimum, attorneys should do:
          1) conduct as much of the normal client interview as possible; 2) make reasonable
          attempts to contact the attorney for the party that is taking action against the debtor; 3)
          check the electronic case dockets for prior bankruptcy filings by the debtor; 4) if possible,
          obtain a credit report on the client; and 5) obtain a prompt prebankruptcy credit
          counseling briefing for the client or otherwise comply with section 109(h).
See Henry J. Sommers, Best Practices for Consumer Bankruptcy Cases (including commentary), (Feb. 8,
2006) (copy on file with chair of Best Practices Working Group and available at
http://www.amercol.org/images/CLI_1388157_v1_Best Practices Committee Update and Sommer Report
and Questionnaire.DOC%20Update%20and%20Sommer%20Report%20and%20Questionnaire.DOC).



                                                    8
         1.1.3. Audience

       This Best Practices Working Paper is broader in reach than was the Task Force
Report on § 707(b)(4), which had as its focus specific statutory provisions affecting only
attorneys representing clients with primarily consumer debts in chapter 7 cases. The
Report, therefore, did not apply to a host of other debtors’ attorneys, including those
representing business entities, chapter 13 debtors or individuals whose debts are not
primarily consumer debts.

        The Best Practices Working Group attempts to reach this larger universe of
debtors’ attorneys, with two caveats. First, in some areas, most notably the discussion of
Form 22A,10 the discussion does tend to have an emphasis on consumer cases. This is
merely a reflection of the fact that consumer filings are the most common among
bankruptcy cases. Second, the Working Group recognizes the unique character of
chapter 11 bankruptcies of large corporations, where, for example, Schedules are
typically filed well after the petition date, if at all. As such, this Working Paper is likely
of limited utility to attorneys who represent large business entities.

1.2. Organization; Key Terms

This Best Practices Working Paper is organized in a two-tier format, an “Initial Inquiry
and/or Document Review” and a “Further Inquiry,” the relevance of which is dependent
upon the client’s responses to the initial inquiry or for other reasons, such as where a
particular disclosure expressly states that specificity is required.

     •   Initial Inquiry and/or Document Review. This phrase is used to indicate that
         the attorney is reasonably confident that the client understands the scope and
         nature of the question asked and has provided a thoughtful, accurate answer. In
         many cases this level of investigation is achieved through discussion with the
         client. In other cases, the client’s written responses to a checklist may suffice.
         For example, no discussion would likely be necessary if the client is an urban
         wage earner and simply answers, “no” when asked about crops or farming
         equipment. On the other hand, the attorney may determine that, for a particular
         client or for specific matters in the preparation of that client’s case, document
         review should be a part of the initial inquiry.

     •   Further Inquiry. A further inquiry is triggered when, in the attorney’s
         professional judgment, the information provided by the client is insufficient,
         incomplete or in need of verification. Further inquiry is usually accomplished by
         reference to source documents, public records or experts, such as appraisers.
         Further inquiry may also be triggered where a particular disclosure or jurisdiction
         requires more than usual detail.


10
  Form 22A must be prepared only by individuals in chapter 7 whose debts are primarily consumer debts.
The phrase “primarily consumer debts” is discussed at Section 1.4.3.


                                                   9
The Working Group has also provided Comments and Practice Pointers on various
subjects. These are intended to give fuller explanation to points made in this Working
Paper and to give debtors’ attorneys some practical considerations to keep in mind when
preparing these documents for clients.

1.3. Legal Standard: Reasonable Inquiry

The legal standard that underlies the Best Practices Working Paper is Rule 9011 of the
Federal Rules of Bankruptcy Procedure and the case law interpreting and applying it.11
Rule 9011 provides, in relevant part:

        (b)      Representations to the court. By presenting to the court (whether
        by signing, filing, submitting, or later advocating) a petition, pleading,
        written motion, or other paper, an attorney or unrepresented party is
        certifying that to the best of the person's knowledge, information, and
        belief, formed after an inquiry reasonable under the circumstances, --

                 (1)     it is not being presented for any improper purpose, such as
                 to harass or to cause unnecessary delay or needless increase in the
                 cost of litigation;

                 (2)     the claims, defenses, and other legal contentions therein are
                 warranted by existing law or by a nonfrivolous argument for the
                 extension, modification, or reversal of existing law or the
                 establishment of new law;

                 (3)     the allegations and other factual contentions have
                 evidentiary support or, if specifically so identified, are likely to
                 have evidentiary support after a reasonable opportunity for further
                 investigation or discovery; and

                 (4)     the denials of factual contentions are warranted on the
                 evidence or, if specifically so identified, are reasonably based on a
                 lack of information or belief.

The Working Group anticipates that this Best Practices Working Paper will be read in
light of the recommendations set forth in the Task Force Report on § 707(b)(4) regarding
application of Rule 9011. This means that consumer debtors’ attorneys, to whom §
707(b)(4)’s “reasonable investigation” and “inquiry” requirements apply, should be able
to look to, and be governed by, the Rule and its judicial application.12



11
   The Best Practices Working Group is, however, mindful of the degree of scrutiny given to chapter 7
consumer debtors with respect to means testing.
12
   The Task Force Report on § 707(b)(4) specifically recommended that “reasonable investigation” and
“inquiry” be governed by Rule 9011 case law.


                                                   10
More specifically, as in the Task Force Report on § 707(b)(4), the Best Practices
Working Group accepts the following general articulation of an attorney’s reasonable
pre-filing inquiry:

         The duty of reasonable inquiry imposed upon an attorney by Rule 11 and
         by virtue of the attorney’s status as an officer of the court owing a duty to
         the integrity of the system requires that the attorney (1) explain the
         requirement of full, complete, accurate, and honest disclosure of all
         information required of a debtor; (2) ask probing and pertinent questions
         designed to elicit full, complete, accurate, and honest disclosure of all
         information required of a debtor; (3) check the debtor's responses in the
         petition and Schedules to assure they are internally and externally
         consistent; (4) demand of the debtor full, complete, accurate, and honest
         disclosure of all information required before the attorney signs and files
         the petition; and (5) seek relief from the court in the event that the attorney
         learns that he or she may have been misled by a debtor.13

In addition, the Best Practices Paper incorporates the other recommendations of the Task
Force Report and, because those recommendations were premised on Rule 9011
jurisprudence, expects that the recommendations will apply to all debtors’ attorneys.
These recommendations include the following:

     •   Attorneys should be able to rely on case law that allows time constraints to be
         taken into account.

     •   The reasonableness of the attorney's inquiry should not be analyzed with the
         benefit of hindsight; rather, the analysis should, as under Rule 9011, focus on the
         attorney's inquiry at the time that the inquiry was made.

     •   Attorneys should verify information supplied by the debtor if such verification
         may be accomplished with a reasonable expenditure of time and expense and, in
         the attorney's professional judgment, the information provided by the client is
         inconsistent or contains other indications of inaccuracy.

     •   Attorneys should be able to rely upon documents prepared by third parties in the
         scope of their employment, including tax returns, credit and title reports, child
         support enforcement agency statements, or information from the debtor's
         prepetition credit counseling agency.14

Although the Task Force Report on § 707(b)(4) was addressed to attorneys representing
consumer debtors in chapter 7 cases, these recommendations were premised on Rule

13
   Task Force Report on § 707(b)(4), supra n.1 at 704 citing In re Robinson, 198 B.R. 1017, 1024 (Bankr.
N.D. Ga. 1996; In re Armwood, 175 B.R. 779, 789 (Bankr. N.D. Ga. 1994); In re Matthews, 154 B.R. 673,
680 (Bankr. W.D. Tex. 1993), See also In re Thomas, 337 B.R. 879, 892 (Bankr. S.D. Tex. 2006); In re
Huerta, 137 B.R. 356, 379 n.8 (Bankr. C.D. Cal. 1992).
14
   Id. at 710.


                                                   11
9011 jurisprudence. Accordingly, the Best Practices Working Group expects that the
recommendations will apply to all debtors’ attorneys, irrespective of the chapter under
which the bankruptcy case will proceed or the character of the client’s debt.

1.4. Other Applicable Legal Standards

         1.4.1. Generally

        Discrete discussions within this Working Paper rely to varying degrees on case
law on point or, in some case, jurisdictional splits. Citations to authority are provided
within those discussions.

         1.4.2. Judicial Standards on Disclosure

        There are any number of cases describing generally a debtor’s duty of disclosure
in the bankruptcy schedules, statement of financial affairs and other required bankruptcy
forms.15 Debtors must make full disclosure and complete their forms fully, accurately
and honestly.16 This duty of disclosure is the tradeoff for the discharge of indebtedness
the debtor receives.17

        Less clear, however, is the degree of specificity required of the debtor in
completing the petition, statement of financial affairs, and other filing documents.18
Obviously, it is inappropriate for a debtor to actively conceal assets or information, to
play “fast and loose,” or to be generally indifferent to the importance of full disclosure.19
At the same time, courts tend not to punish debtors for imperfection or for failing to
exhaustively investigate and fully document the details relating to every asset, liability
and financial transaction.20

        The Best Practices Working Group believes that notice is the guiding principle
underlying the debtor’s duty of complete and accurate disclosure. In other words,
disclosure should be sufficient to put the trustee and creditors on notice of the possible
existence of assets available for distribution and of actions that may be taken against the
debtor.

       There are a variety of reasons underlying our belief that notice is the appropriate
standard. Foremost among them is the trustee’s affirmative duty to investigate the

15
   See, e.g., In re Colvin, 288 B.R. 477 (Bankr. E.D. Mich. 2003) (collecting cases).
16
   Id. (citations omitted).
17
   Id. (citations omitted).
18
   See, e.g., Kuehn v. Cadle Co., 2007 WL 1064306, 2007 U.S. Dist. LEXIS 18387 (M.D. Fla., Mar. 15,
2007) (court was “unable to find any legal authority which explains the level of detail a debtor must include
when listing assets on bankruptcy schedules”).
19
   In re Hamo, 233 B.R. 718, 725 (6th Cir.BAP 1999) (court noted that purpose of the Code is to ensure
that “those who seek the shelter of the bankruptcy code do not play fast and loose with their assets or with
the reality of their affairs”).
20
   See, e.g., In re Price, 211 B.R. 170 (Bankr. M.D. Pa. 1997) (“literal compliance with the Official
Schedules is the exception rather than the rule”).


                                                     12
financial affairs of the debtor.21 Requiring the debtor and the debtor’s attorney to
undertake a comprehensive and detailed prefiling investigation would render this duty
superfluous, especially in light of the debtor’s postpetition obligation to cooperate with
the trustee.22

       The Advisory Committee Note to the schedules likewise assumes a notice
standard in aid of the trustee’s duty of investigation. As one court explained:

        The 1991 Advisory Committee Notes to the Form 6 Schedules (Schedules
        A-J) explain that “the schedules require a complete listing of assets and
        liabilities but leave many of the details to investigation by the trustee.”
        Indeed, the schedules were intended to be summaries that could serve as a
        quick and easy list of relevant information. The Notes state that Schedule
        C, for example, was simplified in 1991 by “eliminating the duplication of
        information provided” on other schedules.             Similarly, a former
        requirement in Schedule C that the debtor state the present use of property
        was “eliminated as best left to inquiry by the trustee.” The requirements
        for listing personal property in Schedule B also reflect the basic purpose of
        the schedules. The Notes state that this schedule requires that debtors
        declare whether they have “any property in each category on the
        schedule.” They add that the trustee “can request copies of any documents
        concerning the debtor’s property necessary to the administration of the
        estate.” The Advisory Committee Notes elaborate that “Section 521(3)23
        of the Code requires the debtor to cooperate with the trustee, who can
        administer the estate more effectively by requesting any documents from
        the debtor rather than relying on descriptions in the schedules which may
        prove to be inaccurate.”24




21
   11 U.S.C. § 704(a)(4).
22
   See 11 U.S.C. § 521(a)(3).
23
   Section 521(3) is now, pursuant to a BAPCPA amendment, § 521(a)(3).
24
   White v. Mitchell (In re Hardee), 1998 WL 766699, *4, 1998 U.S. App. LEXIS 26859, *13, (4th Cir. Oct.
20, 1998) (citations omitted).




                                                  13
        Relevant case law is in agreement.25 In Cusano v. Klein,26 for example, Cusano
was involved in litigation a few years after he exited his chapter 11 bankruptcy case.
Among the issues in that lawsuit was Cusano’s claim for unpaid royalties for songs
written for the rock band KISS. In his bankruptcy, Cusano scheduled “songrights in …
songs written while in the band known as KISS” and listed their value as “unknown.”
The district court dismissed the claims on the basis of Cusano’s lack of standing because
of his alleged failure to schedule in his bankruptcy his copyright and entitlement to
royalties in the songs he composed.

        On appeal, the court determined that the “question of ownership turns on the
validity and effect of Cusano’s listing of his ‘songrights’ as an asset in his bankruptcy
schedules.” The court found that Cusano did, in fact, own the assets because the
disclosure Cusano made “was not so defective that it would forestall a proper
investigation of the asset.”

         The “songrights” asset as described by Cusano can reasonably be
         interpreted to mean copyrights and rights to royalty payments for songs
         written for the band KISS prepetition … Although it would have been
         more helpful for Cusano to break down the description further so that it
         named songs, albums, and dates of and parties to royalty and copyright
         agreements, the additional detail would not have revealed anything that
         was otherwise concealed by the description as it was, which provided
         inquiry notice to affected parties to seek further detail if they required it.27

        Cusano did not prevail, however, regarding his claims for prepetition royalties
and other claims that accrued ahead of his bankruptcy filing. These, the court
determined, “were subject to a separate scheduling requirement as accrued causes of
action,” which are separate assets that must be scheduled as such. “Simply listing the
underlying asset out of which the cause of action arises is not sufficient.”28

25
   It should be noted that although informative, decisions in § 727 actions to deny the debtor’s discharge
are, in some respects, of limited utility. On the one hand, that section is generally construed strictly against
the objecting party because of the harshness of the remedy and bankruptcy’s “fresh start” policy. In re
Akhtar, 368 B.R. 120 (Bankr. D. N.Y. 2007) (indicating that “[t]his rule of construction gives effect to the
bankruptcy goal of providing honest debtors with a ‘new opportunity in life and a clear field for future
effort, unhampered by the pressure and discouragement of preexisting debt.’ Citing Cazenovia College v.
Renshaw (In re Renshaw), 222 F.3d 82, 86 (2d Cir. 2000). On the other hand, when successful, § 727
actions often involve egregious disclosure failures and other misconduct on the part of debtors. Thus, the §
727 cases do not fully address situations where a debtor (and the debtor’s attorney) may face sanctions for
inadequate disclosure that would be insufficient to deny the debtor’s discharge. Compare Jensen v. Groff
(In re Groff), 216 B.R. 883 (Bankr. M.D. Fla. 1998) (discharge denied where, among other things, debtor
failed to disclose $50,000 tax refund received) with In re Colvin, 288 B.R. 477 (Bankr. E.D. Mich. 2003)
(where debtors failed to disclose $10,000 income tax refund, their only asset, appropriate remedy was to
deny debtors’ claim of exemption in that refund).
26
   264 F.3d 936 (9th Cir. 2001).
27
   Id. at 946-47. See also In re Blum, 41 B.R. 816, 819 (Bankr. S.D. Fla. 1984) (debtor’s failure to properly
value two automobiles was not grounds for denial of discharge because the assets were properly disclosed
to the Trustee who could perform an appraisal of the vehicles). In re Price, 211 B.R. 170, 172 (Bankr. M.D.
Pa. 1997) (although the debtor is required to file accurate schedules, substantial compliance is enough).
28
   Id. at 947 citing Vreugdenhill v. Navistar Int’l Transp. Corp., 950 F.2d 524, 526 (8th Cir. 1991).


                                                      14
        In Tilley v. Anixter, Inc.,29 the court distinguished the facts regarding claim
ownership in the case before it from Cusano and, consequently, reached a different result.
In Tilley, the debtor disclosed claims arising from ongoing domestic relations disputes
with her former spouse, but the question arose as to whether she properly disclosed the
specific claim of intentional infliction of emotional distress. Holding that the debtor did
not make adequate disclosure, the court reasoned that the language she used to describe
her claim “show[s] that she scheduled a state court claim for unpaid child support, not for
intentional infliction of emotional distress.” That the latter claim may have arisen from
her former husband’s actions relating to his child support obligations “did not absolve her
of a duty to schedule it separately” because “a claim ‘for back child support’ does not …
inform a trustee of the need to investigate” whether the debtor has a claim for emotional
distress.30

        The notice standard described above should not be confused with a lax standard.
The Best Practices Working Group does not suggest or wish to be interpreted as
concluding that it is appropriate for debtors to make minimal disclosure in the
expectation that the trustee will follow up in filling in the details. Overly vague and
incomplete disclosure not only fails to put the trustee on notice of specific inquiries that
should be made, but can also give rise to actions against the debtor, up to and including
denial of discharge.

        The reasoning above regarding disclosure applies with equal force to the value
stated for a client’s assets.31 Although valuing assets can be difficult, the Best Practices
Working Group believes that an attorney should always be as specific as reasonably
possible under the circumstances. This does not mean that an attorney must hire a
professional to value every asset, such as the debtor’s home.32 The Working Group
merely believes that its endorsement of specificity with regard to valuing assets means
avoiding the use of “unknown” except when a reasonable inquiry indicates that
“unknown” is the most accurate description of an asset’s value. The Working Group’s
belief is fostered by some courts’ statements that (1) an approximate value may be the

29
   332 B.R. 501 (D. Conn. 2005).
30
   Id. at 510-11. See also In re Doyle, 209 B.R. 897 (Bankr. N.D. Ill. 1997) (where court stated that
“’Household Furnishings-4 rooms’ inadequately described contents of those four rooms, and thus
exemption was not listed with requisite degree of specificity”. The court also stated that the debtors did not
list their bank account, life insurance policy, and retirement with the required specificity. In re Dickson,
114 B.R. 740, 742 (Bankr.N.D.Okla.1990) (court denied the debtors' claim of exemption because the debtor
did not indicate the statutory basis for the exemption); In re Wenande, 107 B.R. 770, 772
(Bankr.D.Wyo.1989) (debtors’ listing of “stocks” “mineral interest,” “accounts,” “intangibles,” and
“personal property” was not sufficient to provide notice to the trustee of the property claimed as exempt.
31
   An important distinction, however, is that for purposes of exempting property, courts often expect more
precision than for other filing documents such as Schedule B. See, e.g., In re Bell, 179 B.R. 129, 131
(Bankr. E.D. Wisc. 1995) (“A debtor is in a far better position than the trustee to know the value of the
property being claimed as exempt. To permit the debtor to exempt such property by use of the term
‘entirely exempt’ would required a trustee in almost every case to obtain an appraisal.”).
32
   See In re Seruntine, 46 B.R. 286, 288 (Bankr. C.D. Cal. 1984) (“A debtor who lives in an area in which
his home is comparable to those of his neighbors will usually have a good idea of its value from simply
living in the area and talking to neighbors about recent sales.”).


                                                     15
best information; (2) if an approximate value cannot be obtained, then an estimate is
appropriate; and (3) finally, if no educated estimate may be made, then the use of
“unknown” may be proper.33

        The Best Practices Working Group does not seek to specify or define what is
entailed within the Working Group’s recommendation. Such a determination must be
made by individual attorneys on a case-by-case basis and should be consistent with the
foregoing discussion of the appropriate standard for disclosure. A useful example is a
prepetition cause of action, which is quite difficult to value prior to settlement or final
judgment. 34 If a lawsuit has been actually commenced, counsel could include a
statement in the property’s description indicating the amount of damages prayed for in
the complaint.

        In some circumstances, it might not be possible to provide a reasonable estimate
of an asset’s value, in which case the use of “unknown” is likely an appropriate
description of value. Attorneys should not have to make a guess simply to provide a
numeric value because a guess could be more inaccurate – and misleading – than
candidly stating that the value, after reasonable inquiry, is not known. When “unknown”
is used, however, the Best Practices Working Group believes that more detailed
information should be provided regarding the property itself. For example, if the client is
a member of a class action against a defendant that has sought chapter 11 relief, the
attorney should provide a description of the lawsuit, the name of the defendant, contact
information for class counsel and the case number and jurisdiction of the defendant’s
bankruptcy.

         1.4.3. “Primarily Consumer Debts”

       The phrase “primarily consumer debts” makes several appearances throughout the
forms discussed in this Best Practices Working Paper. There is not, however, a definition




33
   See, e.g., Cusano v. Klein, 264 F.3d 936, 946 (9th Cir. 2001) (In a chapter 11 case, the court noted:
“Although there are no ‘bright-line rules for how much . . . specificity is required,’ [a debtor is] required to
be as particular as is reasonable under the circumstances. . . . If possible, [the debtor should] list the
‘approximate dollar amount’ of each asset. . . . If faced with a range of values, [a debtor should] ‘choose a
value in the middle of the range.’ . . . There are assets, however, the value of which is unknown; when that
is the case, ‘a simple statement to that effect’ will suffice.”); In re Wenande, 107 B.R. 770, 772 (Bankr. D.
Wyo. 1989) (“This court’s position is that ‘value,’ as set forth on the official form, generally means an
approximate dollar amount . . . . [V]alue is the type of information that is not always available on the date
a petition is filed. Where it is not, an estimation, so designated, may serve the purpose of the B-4 Schedule,
e.g., ‘approximately $1,500.’ If the value is unknown, a simple statement to that effect serves the purpose
of the B-4 Schedule.”).
34
   See Wissman v. Pittsburgh Nat’l Bank, 942 F.2d 867, 871 (4th Cir. 1991) (“A cause of action . . . is an
asset that is not easily valued because there is no market where it is bought and sold.”).




                                                      16
of that phrase in the Code;35 neither are the courts in full agreement as to when an
individual’s debts are primarily consumer debts.36

        “Consumer debt” is a defined term and it means a debt incurred by an individual
primarily for a personal, family or household purpose.37 Taxes38 and debts incurred with
a profit motive39 are generally not consumer debts. However, the character of many other
debts is not facially apparent. As the definition indicates, the determination here rests on
the purpose of the debt. Many individuals, for example, have debt relating to
automobiles purchased for everyday life, which clearly fits the “consumer debt”
definition. Others, however, may have a vehicle that is dedicated to business, in which
case the underlying debt is not for personal, family or household purposes.40

35
   “Consumer debt” is defined in § 101(8) as a “debt incurred by an individual primarily for a personal,
family, or household purpose.”
36
   See generally, Deborah Sprenger, What are “primarily consumer debts,” under 11 U.S.C.A. § 707(b),
authorizing dismissal of chapter 7 Bankruptcy case if granting relief would be substantial abuse of
chapter’s provision? 101 A.L.R. FED. 771 (1991).
37
   See In re Bell, 65 B.R. 575, 577-78 (Bankr. E.D. Mich. 1986).
38
   See IRS v. Westberry (In re Westberry), 215 F.3d 589 (6th Cir. 2000) (courts that have addressed the issue
have “almost without exception” held tax debts are not consumer debts).
39
   See Citizens Nat’l Bank v. Burns (In re Burns), 894 F.2d 361 (10th Cir. 1990) (loan not a “consumer
debt” when taken out for purpose of playing the stock market); Toyota Motor Credit Corp. v. Johnson,
2007 WL 2702193, 2007 U.S. Dist. LEXIS 67820 (W.D. La. Sept. 11, 2007) (while interpreting the
definition of “personal use” in the hanging paragraph contained in 11 U.S.C. § 1325(a)(5), the Court stated:
“the relevant inquiry for purposes of defining the term ‘personal use’ as opposed to ‘business use’ within
the context of the ‘cramdown’ provision and the ‘hanging paragraph’ is twofold, that is: (1) whether the
individual is using the vehicle to travel to and from work, or (2) whether the vehicle is actually utilized in
the performance of the individual’s job duties.” The Court found this distinction in conformity with the
definition of “consumer debts” included in 11 U.S.C. § 101(8) as being those debts incurred for “personal”
use); Davis v. Melcher (In re Melcher), 322 B.R. 1 (Bankr. D.D.C. 2005) (Plaintiff alleged that defendant-
debtors utilized fake building permits and an unlicensed contractor to renovate their home, thereby causing
damage to a neighbor’s home. In finding the debt not to be a consumer debt, the Court stated: “[t]he debt
must be viewed from the perspective of the plaintiff’s theory of a fraud debt which entailed a profit motive
because the defendants engaged in fraud to perform construction on the cheap.” Moreover, since the
damage was caused as a result of the contractor’s negligence, the debt owed by defendant-debtors was not
incurred for a consumer purpose since “negligence by definition is unintended and thus cannot be a debt
incurred for a household purpose.”); In re Pedigo, 296 B.R. 485 (Bankr. S.D. Ind. 2003) (despite the debtor
incurring mortgage expenses to acquire building adjacent to his home, the Court held that this expense did
not constitute “consumer debt” since the debtor’s purpose in acquiring the adjacent land was to rent it out).
But see Frazier v. Bank of Virginia (In re Lindamood), 21 B.R. 473 (Bankr. W.D. Va. 1982) (Debtor asked
plaintiff, a friend, to co-sign a loan from defendant-bank. Plaintiff did so as a personal favor to debtor.
Unbeknownst to plaintiff, Debtor used the proceeds of the bank loan in the debtor’s automobile business.
In determining the applicability of the co-debtor stay, the court held that, from the standpoint of the debtor
and the co-debtor, the loan was a “consumer debt” despite the fact the debtor used the loan proceeds in the
debtor’s business.); Boitnott v. United Virginia Bank (In re Boitnott), 4 B.R. 122 (Bankr. W.D. Va. 1980)
(Title to two vehicles was taken in one of the debtor’s name. Later, title to the vehicles was transferred to a
corporation owned by the debtors. Subsequently, the bank holding liens on the vehicles consented to the
re-titling of the vehicles in one of the debtor’s names. For the convenience of the bank, the Debtor
consolidated the notes on the vehicles with various other notes of the corporation. The Court held that the
consolidation of the vehicle debts with debts of the debtors’ business did not change the fact that the debts
on the vehicles were consumer debts.)
40
   See In re Shaffer, 315 B.R. 90 (Bankr W.D.Mo. 2004) (where debtor money borrowed by debtor from
father to purchase a truck, debt was a non-consumer debt because truck was used primarily in farming


                                                     17
        “Primarily” is defined differently among the courts. Most agree that “primarily”
means the total amount of consumer debt should exceed 50 percent of overall
indebtedness. In some jurisdictions, the inquiry stops here because of holdings that
consideration should rest on the dollar amount owed.41 In others, such as the Fifth
Circuit, the court may look also at the number of consumer debts relative to the number
of non-consumer debts.42




business). But see In re Lowder, 2006 WL 1794737, 2006 Bankr. LEXIS 1769 (Bankr. D. Kan. Aug. 14,
2006), holding that “when a vehicle is not used within the scope of employment and the vehicle is acquired
for the joint purpose of traveling to and from work and for conducting a debtor's private affairs, it is
properly classified as ‘personal use’ for purposes of the Bankruptcy Code.
41
   See, e.g., Stewart v. United States Trustee (In re Stewart), 175 F.3d 796 (10th Cir. 1999) (consumer debt
must be more than fifty percent); In re Kelly, 841 F.2d 908 (9th Cir. 1988) (same).
42
   In the Matter of Booth, 858 F.2d 1051 (5th Cir. 1988). See also First USA v. Lamanna (In re Lamanna),
153 F.3d 1, n.2 (1st Cir. 1998) (in dicta, citing In re Booth in defining “primarily”); In re Vianese, 192 B.R.
61 (Bankr. S.D.N.Y. 1996) (adopting Booth approach).


                                                      18
                                               Section 2
                                           Voluntary Petition


Current Name of Debtor and Joint Debtor

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Because the trustee or U.S. trustee may request verification of
Debtor’s identity, a copy of Debtor’s driver’s license, passport or other identifying
document should be copied (scanned) and saved in the file (folder).

Practice Pointer: Joint petitions are limited to individuals who are married to each
other. Other relationships among individuals, such as parent and child, do not qualify
and neither do non-individual relationships, such as corporate parent and subsidiary.

Although rare, issues of whether a couple is legally married can arise. Resort to state law
is usually appropriate, such as with a common law marriage, but that may not be the case
with same sex marriages or civil unions because of the federal Defense of Marriage
Act.43 Under DoMA, “spouse” in Code § 302 can only mean “a person of the opposite
sex who is a husband or a wife.”44


Prior Name(s) of Debtor and Joint Debtor

Initial Inquiry and/or Document Review: Ask client about past names, including dba’s
and fdba’s, over the prior eight years.

Further Inquiry: Confirm that information about dba’s or fdba’s is consistent with info
in SoFA Item #18.

Practice Pointer: Compare with information on tax returns (IRS Schedule C) to
determine if client has been self employed or in businesses within the last 8 years. The
tax returns may disclose f/dba information that the client has overlooked.


Social Security, EIN or Other Tax Identification Number

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Confirm via tax returns, W-2’s, 1099’s etc.

Practice Pointer: Note that only the last four digits of an individual’s Social Security
number should be listed, but other tax identification numbers should be listed in full.

43
     1 U.S.C. § 7.
44
     See, e.g., In re Kandu, 315 B.R. 123 (Bankr. W.D. Wash. 2004).


                                                     19
Address/Mailing Information

Initial Inquiry and/or Document Review: Ask client about current physical address
and mailing address. If mailing address and physical address are different, disclose this
information in the proper section. For business clients, inquire about location of principal
assets and disclose.

Further Inquiry: For married clients contemplating separation or divorce, confirm
accuracy of address and mailing information just prior to filing.

Practice Pointer: This inquiry can be far more complicated than it seems with consumer
debtors who are separated and/or divorcing and moving around while filing bankruptcy at
the same time.


Type of Debtor (Form of Organization)

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: If the client is an artificial entity, conduct a search of jurisdiction of
organization to confirm the type or form of the organization and verify the exact correct
name of the entity.

Practice Pointer: Confirm the governing body of the organization has authorized the
filing of the petition and obtain a copy of the authorization or resolution from the client’s
governing body.


Nature of Business (including Tax Exempt Entity)

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: In most cases none should be required.

Practice Pointer: For the most part, this Item allows easy identification of cases for
which the Code provides some form of unique treatment, such as healthcare debtors,
which must comply with the various Code amendments in Title IX of BAPCPA. If
“other” is selected, a general description (e.g., “auto repair” or “retail”) should suffice.


Chapter under which Case will Proceed

Initial Inquiry and/or Document Review: None.




                                              20
Further Inquiry: None.

Practice Pointer: Chapter selection requires the attorney’s professional determination
formed after:

     •   Analyzing the client’s goals and financial circumstances;
     •   Explaining to the client the purpose and requirements of the various chapters; 45
         and
     •   Applying controlling statutory and judicial eligibility rules.

Counsel should retain work product confirming the explanation, recommendation and
client’s informed consent to chapter choice.


Nature of Debts46

Initial Inquiry and/or Document Review: Ask client, as appropriate. Much of
counsel’s inquiry into the nature of the client’s debts will stem from the analysis required
to complete Schedules D, E and F.

Further Inquiry: In close cases, inquire about underlying nature of debts, particularly
credit card debts that may have been incurred for business purposes. In individual cases,
if counsel concludes that the debts are not primarily consumer debts, a memo to the file
and/or retention of the internal work product used to make that determination is
advisable. Cross reference the information provided by the client with information
provided in any credit reports to confirm non-consumer vs. consumer purposes.

Practice Pointer: The “Nature of Debts” box in the petition provides for only two
choices: a) primarily consumer debts; and b) primarily business debts. These two choices
fail to account for cases in which the debts are not primarily either business or consumer
(a case in which the debt is primarily tax debt or tort debt). In cases such as those,
counsel will need to determine if either box should be checked or an explanatory
statement added to the official form.


Filing Fee. No comment.


Chapter 11 Debtors/Small Business and Pre-Packaged Chapter 11 Cases

Initial Inquiry and/or Document Review: Whether the client will file a plan with the
petition and has solicited acceptances prepetition should not require separate inquiry by
the attorney. Except under unusual circumstances, the attorney will have been involved

45
   If counsel is a “debt relief agency,” the client must be given the notice required under § 342(b)(1), which
explains the chapter choices. See 11 U.S.C. § 527(a)(1).
46
   See Section 1.4.3. for a discussion of “primarily consumer debts.”


                                                     21
in the prepetition plan development and vote solicitation and, accordingly, whether these
boxes need to be checked will be self-evident.

The attorney should be able to determine whether the client is a “small business debtor,”
as defined in § 101(51D),47 from the information required to complete Schedules D, E
and F.

Further Inquiry: Verification may be required regarding whether the client’s debts are
in fact noncontingent, liquidated or owed to insiders or affiliates.

Practice Pointer: A “small business debtor” is defined not just by reference to the
client’s indebtedness, but also based on whether a creditors’ committee has been
appointed and is active in the case. This language is obviously not applicable to
prepetition document preparation because a case must be actually commenced before
committees can be appointed. Accordingly, attorneys should be guided by the debt
ceiling portion of the definition of the petition, even though the information would appear
to be repetitive.48


Prior Bankruptcy Cases

Initial Inquiry and/or Document Review: Ask client.




47
   As amended by BAPCPA, “small business debtor:”:
                   (A)       subject to subparagraph (B), means a person engaged in commercial or
          business activities (including any affiliate of such person that is also a debtor under [Title
          11] and excluding a person whose primary activity is the business of owning or operating
          real property or activities incidental thereto) that has aggregate noncontingent liquidated
          secured and unsecured debts as of the date of the petition or the date of the order for relief
          in an amount not more than $[2,190,000] (excluding debts owed to 1 or more affiliates or
          insiders for a case in which the United States Trustee has not appointed under section
          1102(a)(1) a committee of unsecured creditors or where the court has determined that the
          committee of unsecured creditors is not sufficiently active and representative to provide
          effective oversight of the debtor; and
                   (B)       does not include any member of a group of affiliated debtors that has
          aggregate noncontingent liquidated secured and unsecured debts in an amount greater
          than $[2,190,000] (excluding debt owed to 1 or more affiliates or insiders).
Note that § 101(51D) itself imposes a $2,000,000 debt ceiling, but that amount is subject to triennial
adjustment pursuant to § 104.
48
   The Best Practices Group is unsure why a small business debtor would have to check two boxes, one
indicating that the debtor is a small business debtor and the other that the relevant debts are below the
statutory ceiling. The Advisory Committee Note provides no clarification, stating only that “chapter 11
debtors whose aggregate noncontingent debts owed to non-insiders or affiliates are less than $2 million are
directed to identify themselves in this section.” Indeed, the Note appears to be inconsistent with the
petition and Code definition because, although debt owed to affiliates is excluded from the definition, the
Advisory Committee Note suggests it should be included for purposes of the “aggregate debt” box on the
petition.


                                                    22
Further Inquiry: Some courts require PACER search for prior cases, at least in certain
circumstances.49 If the prior case terminated because of the individual client’s failure to
obtain prepetition credit counseling, determine whether the prior case should be treated as
having been dismissed or, conversely, never filed.50

Practice Pointer: If there are two or more prior cases, the attorney should ensure that no
court has entered an injunction prohibiting the filing the client is currently contemplating
or for which the attorney is currently preparing.51


Pending Bankruptcy Cases of Debtor’s Spouse, Partner or Affiliate

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: The attorney should run a PACER search to confirm any information
that the client provides about related cases.


Exhibit A: Publicly traded companies disclosures

Initial Inquiry and/or Document Review: The information disclosed in Exhibit A is
for publicly traded companies only. Ask client if it is required to file periodic reports
with the SEC. If so, counsel should obtain these reports and provide Exhibit A as
required.

Further Inquiry: None.

Practice Pointer: Note that the information sought in Item 4 of Exhibit A is the same
information requested in Item 21(b) of the Statement of Financial Affairs.


Exhibit B: Attorney declaration regarding chapter selection

Initial Inquiry and/or Document Review: None.

Further Inquiry: None.

Practice Pointer: This exhibit is used only in individual cases with primarily consumer
debts and confirms that counsel has provided the notice required by § 342(b).52 As noted
above, chapter selection requires the attorney’s professional determination formed after:
49
   See, e.g., In re Oliver, 323 B.R. 769 (Bankr. M.D. Ala. 2005); In re Bailey, 321 B.R. 169 (Bankr. E.D.
Pa. 2005).
50
   See In re Elmendorf, 345 B.R. 486 (Bankr. S.D.N.Y. 2006) (court has authority to determine whether
petitions should be stricken or dismissed based on the circumstances).
51
   Although a full discussion is beyond the scope of this Working Paper, the Best Practices Working Group
notes that a prior filing can legally impact the currently contemplated case in a variety of ways including
limited applicability of the automatic stay.


                                                    23
     •   Analyzing the client’s goals and financial circumstances;
     •   Explaining to the client the purpose and requirements of the various chapters; and
     •   Applying controlling statutory and judicial eligibility rules.

Counsel should retain work product confirming the explanation, recommendation and
client’s informed consent to chapter choice.


Exhibit C: Debtor ownership or possession of property that poses or is alleged to
pose a threat of imminent and identifiable harm to public health or safety.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Follow up on information by obtaining and reviewing documents
from client related to matters disclosed. Complete Exhibit C as required.

Practice Pointer: If a chapter 7 case is being filed, prepare an information package for
the trustee to make a prompt decision regarding abandonment.


Exhibit D: Individual debtor statement regarding consumer credit counseling
requirement.

Initial Inquiry and/or Document Review: Explain requirement to client and ask client
to obtain and provide certificate.

Further Inquiry: Confirm certificate has not expired at time of filing.

Practice Pointer: Advise clients to obtain these late in the case preparation process.


Venue

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Check client’s responses to Item 15 in Statement of Financial Affairs
regarding whether the client has moved in the prior three years.

Practice Pointer: The test for venue is still 180 days although the test for exemption
eligibility is 730 days.




52
  The statutory authority for the Exhibit B declaration is § 521(a)(1)(B)(iii)(I), not § 342(b). The latter
requires the clerk to provide the debtor with the required notice.


                                                      24
Statement of Debtor who Resides as Tenant of Residential Property

Initial Inquiry and/or Document Review: Ask if the client: a) is a tenant of real
property; b) is in default and other items related to the tenancy.

Further Inquiry: Determine if client can cure the monetary default and whether a
deposit or rent for the 30 days postpetition should be included.




                                          25
                                         Section 3

                               Schedule A: Real Property


Initial Inquiry and/or Document Review: Determine that client has an understanding
of the types of real property interests involved.

Further Inquiry: Check public records, such as those maintained by county recorders,
online asset search or valuation services (where feasible), tax notices, appraisals, deeds,
mortgages or deeds of trust, title reports, leases and land contracts, environmental notices,
divorce judgments.

Comment: In his 1999 study of the accuracy of bankruptcy schedules and statements of
financial affairs, Judge Rhodes found that a common error was the failure to designate
who has an interest in property. Accuracy in designating ownership interest is especially
important with respect to real estate, as is accurately disclosing how the property is held,
i.e., joint tenancy, tenancy by the entireties, etc. Because of the significance of real
property in the debtor’s overall financial status, disclosure problems on Schedule A can
lead to serious consequences, from the loss of the homestead exemption or the home
itself to the denial of discharge.

Practice Pointers: Attorneys should determine whether property is community or
common law property and whether the property is held as a tenancy by the entireties.

With respect to the value of real property, counsel should consider including a brief
description of the valuation method or source, such as a real estate broker’s drive-by or
the value ascribed by the local taxing authority. Attorneys are reminded that where the
debtor owns real property with a non-filing individual, only the value of the debtor’s
interest should be scheduled. Check local rules for § 341 meeting documentation
requirements.




                                             26
                                               Section 4

                                 Schedule B: Personal Property

Certain aspects of the attorney’s inquiry are common to all types of personal property on
Schedule B while others warrant unique consideration. The Best Practices Working
Group’s discussion here reflects these commonalities and distinctions, with general
considerations discussed first and, below, the Working Group present issues unique to
each subpart of Schedule B.

General Comments: Long standing case law construing § 541 has expansively defined
property interests by reference to state law.53 In Segal v. Rochelle,54 the Court stated that
“the term ‘property’ has been construed most generously and an interest is not outside its
reach because it is novel or contingent or because enjoyment must be postponed.”55
Subsequently, the broad reach of estate property was confirmed in United States
v. Whiting Pools.56

Thus, the Best Practices Working Group suggests that 1) attorneys analyze the existence
of property interests using this framework; and 2) that if the property exists under state
law, all such interests be scheduled or disclosed on the appropriate schedule; and 3) any
ambiguity over the existence of property be resolved in favor of disclosure.57
Additionally, attorneys should avoid using “unknown” as the value of an asset unless,
after reasonable inquiry, “unknown” is the most accurate description that can be
provided.58

Practice Pointer: Attorneys should determine whether property is community or
common law property and whether the property is held as a tenancy by the entireties.




53
   See Butner v. United States, 440 U.S. 48, 54 (1979) (“Congress has generally left the determination of
property rights in the assets of a bankrupt’s estate to state law”).
54
   382 U.S. 375 (1966).
55
   Id. at 379.
56
   462 U.S. 198 (1983).
57
   See, e.g., In re Cheatham, 309 B.R. 631 (Bankr. M.D. Ala. 2004), in which the debtors scheduled, and
claimed as exempt, prepaid tuition purchased for the debtors’ children through a plan offered by the state.
A threshold issue was whether the plans were property of the debtors or the debtors’ children. The court
determined that the plans were not property of the estate, but noted that the schedules do not allow easy
disclosure for this kind of property and advised:
           The best course of action is to schedule the property and then claim it exempt, thereby
           making full disclosure and giving notice that the debtor believes that the property is not
           subject to distribution to creditors. Another option may be to make the disclosure in
           Paragraph 14 of the Statement of Financial Affairs, which calls for a listing of “property
           held for another.”
Id. at 637-38 citing In re Stevens, 177 B.R. 619, 620 n.2 (Bankr. E.D. Ark. 1995); In re Avis, 1996 WL
910911 1996 Bankr. LEXIS 1948 (Bankr. E.D. Va. Mar. 12, 1996). The court further rejected the argument
that, by making disclosure, the debtor waived the argument that the property was excluded from the estate.
58
   See Section 1.4.2. for a more detailed discussion of the use of “unknown.”


                                                    27
Item B.1: Cash on Hand

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Examine bank records for large withdrawals and missing deposits
such as payroll.


Item B.2: Checking, savings or other financial accounts, certificates of deposit, or
share in banks, savings and loan, thrift, building and loan, and homestead
associations, or credit unions, brokerage houses, or cooperatives.

Initial Inquiry and/or Document Review: Discuss various types of accounts and the
difference between bank balance and checkbook balance. Determine that the value is
recent.

Further Inquiry: Obtain and review bank records. Check local rules for § 341 meeting
documentation requirements.

Practice Pointers: The amounts payable on checks written but not yet cleared as of the
petition date are likely property of the debtor and, therefore, of the estate. 59 Outstanding
checks should be noted separately because, when presented and paid, the checks are
postpetition transfers of property of the estate and subject to avoidance by the trustee.
Note also that the trustee might seek to recover the funds from the debtor.


Item B. 3: Security deposits with public utilities, telephone companies, landlords,
and others.

Initial Inquiry and/or Document Review: Inquire regarding the various types.

Further Inquiry: Examine leases, other agreements, cancelled checks, etc.


Item B. 4: Household goods and furnishings, including audio, video, and computer
equipment.

Initial Inquiry and/or Document Review: Ask about items purchased for more than a
threshold value in accordance with local practice and custom, items purchased recently,
antiques, electronics, and insurance riders.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through.



59
     See Brown v. Pyatt (In re Pyatt), 486 F.3d 423 (8th Cir. 2007).


                                                        28
Comment: The degree of specificity presents an especially tricky question with respect
to this Item. Overgeneralizations, such as “miscellaneous household goods,” are likely
insufficient to put the trustee on notice of whether the client has property that is not
exempt and of value to estate creditors. On the other hand, a detailed itemization might
require significant effort that, on balance, is not merited because the value of the various
goods will lead to no return for creditors, especially after exemptions are taken into
account.

Practice Pointer: Attorneys should be satisfied with the client’s responses to questions
regarding items to be disclosed here. Further, the consequences of attempting to hide
property should be made clear.


Item B. 5: Books; pictures and other art objects; antiques; stamp, coin, record,
tape, compact disc, and other collections or collectibles.

Initial Inquiry and/or Document Review: Ask about items purchased for more than a
threshold value in accordance with local practice and custom, items purchased recently,
antiques, electronics, and insurance riders.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through.

Practice Pointers: It can be helpful to simply ask the client, “Do you collect anything?”
or, “Do you have a lot of [books, movies, CDs, etc.]?” In addition, clients need to
understand the distinction between ordinary items and those that may have value.


Item B. 6: Wearing apparel.

Initial Inquiry and/or Document Review: Ask about items purchased for more than a
threshold value in accordance with local practice and custom, items purchased recently,
antiques, electronics, and insurance riders.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through.

Practice Pointer: Clients need to understand the distinction between ordinary wearing
apparel and items that may have value. Most used wearing apparel is normally worth
about ten percent of its retail value.




                                             29
Item B. 7: Furs and jewelry.

Initial Inquiry and/or Document Review: Ask about items purchased for more than a
threshold value in accordance with local practice or custom, items purchased recently,
antiques, electronics, and insurance riders.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through. Review insurance
riders, as applicable.

Practice Pointer: Most everyone has something that can and should be disclosed in the
“furs and jewelry” category and in some jurisdictions listing “none” will raise a red flag
for the trustee. Clients may be less than candid regarding items to which the client feels a
sentimental attachment or to those items that are family heirlooms.


Item B. 8: Firearms and sports, photographic, and other hobby equipment.

Initial Inquiry and/or Document Review: Ask about items purchased for more than a
threshold value in accordance with local practice or custom, items purchased recently,
antiques, electronics, and insurance riders.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through.


Item B. 9: Interests in insurance policies. Name insurance company of each policy
and itemize surrender or refund value of each.

Initial Inquiry and/or Document Review: The question requires a detailed response.
Exemptions may depend on the response.

Further Inquiry: Review the declaration sheet and statement of current cash surrender
value. Check local rules for § 341 meeting documentation requirements.

Practice Pointer: Counsel should exercise discretion regarding insurance policies that
have no value unless a stated contingency occurs, such as term life insurance policies.
However, any insurance policy, including home and auto policies, against which the
client or some other person may have a claim should be disclosed and the claim should be
scheduled or listed in the Statement of Financial Affairs, as appropriate. Life insurance
policies in which the client has a beneficial interest should be scheduled under Item 20.




                                            30
Item B.10: Annuities. Itemize and name each issuer.

Initial Inquiry and/or Document Review: The question requires a detailed response.
Exemptions may depend on the response.

Further Inquiry: Declaration sheet and statement of current cash surrender value.

Comment: It is unclear how the value of annuities should be scheduled. Keeping in
mind that the use of “unknown” is discouraged and that the disclosure standard is to put
the trustee and creditors on notice of the asset,60 attorneys should exercise professional
judgment in determining how to list value.


Item B.11: Interests in an education IRA as defined in 26 U.S.C. § 530(b)(1) or
under a qualified State tuition plan as defined in 26 U.S.C. § 529(b)(1). Give
particulars. (File separately the record(s) of any such interest(s). 11 U.S.C. §
521(c); Rule 1007(b)).

Initial Inquiry and/or Document Review: The question requires a detailed response. In
addition, if exemption rights cannot be determined with reasonable certainty, recent
statements or consultation with a plan administrator may be necessary.

Further Inquiry: Declaration sheet and statement of current cash surrender value.

Comment: This Item was necessitated by the enactment of §§ 541(b)(5) and (6) in 2005.
A number of questions arise, such as who is the owner of funds and whether the funds are
excluded or may be exempted from the estate, but as yet these questions have not been
addressed by the courts.61

Practice Pointer: If the education IRA is for a child of the client, it should still be
scheduled. Do not include names of minor children.




60
  See Section 1.4.2, supra.
61
  New § 541(b)(5) and (6) purport to alter the amount of these education funds that is property of the estate
by excluding from the estate only contributions made within a year of filing the petition (along with other
restrictions and conditions). However, this does not answer the question of who owns the funds. In In re
Cheatham, 309 B.R. 631 (Bankr. M.D. Ala. 2004), for example, the court held that, under Alabama law,
pre-paid tuition credits were property of the debtors’ children and, therefore, excluded from the estate. If
the beneficial interest is in a non-debtor, then it is difficult to see how the funds could be administered for
the benefit of the debtor’s creditors. Bankruptcy law should not, and likely cannot, be construed as
requiring a forfeiture of property owned by a non-debtor. See, e.g., In re Persky, 134 B.R. 81, 97 (Bankr.
E.D.N.Y. 1991) (“When Congress, however, determines that property of a third party, not a creditor or
insider of the debtor, and having nothing to do with the bankruptcy process, can be taken, affected or
appropriated, wholly or partially, for the benefit of the debtor’s estate or its creditors, it has gone beyond
that which is permissible under the Bankruptcy Clause.”).


                                                      31
Item B.12: Interests in IRA, ERISA, Keogh, or other pension or profit sharing
plans. Give particulars.

Initial Inquiry and/or Document Review: The question requires a detailed response. In
addition, if exemption right cannot be determined with reasonable certainty, recent
statements or consultation with a plan administrator may be necessary.

Further Inquiry: Review recent statements, plan documents, declaration sheet and
statement of current cash surrender value.

Comment: It is unclear how the value of these assets should be scheduled. Keeping in
mind that the use of “unknown” is discouraged and that the disclosure standard is to put
the trustee and creditors on notice of the asset,62 attorneys should exercise professional
judgment in determining how to list value. Counsel should inquire about loans from
these assets and discuss the effect of the discharge. Apparently, if the personal liability to
repay the loan is discharged and any loans from these plans are not repaid, a plan
administrator can treat the unpaid loan as an early distribution, thus triggering tax
consequences.63


Item B.13: Stock and interests in incorporated and unincorporated businesses.
Itemize.

Initial Inquiry and/or Document Review: The question requires a detailed response.
Closely held interests must be discussed in detail to determine the nature and value of the
debtor’s interest.

Further Inquiry: Tax returns, account statements regarding publicly traded stocks.
Closely held interests may call for a review of the books, buy-sell agreements,
bankruptcy clauses, etc, or consultation with the client’s or company’s accountant.


Item B.14: Interests in partnerships or joint ventures. Itemize.

Initial Inquiry and/or Document Review: The question requires a detailed response.
Closely held interests must be discussed in detail to determine the nature and value of the
debtor’s interest.



62
  See Section 1.4.2, supra.
63
  See In re Herndon, 289 B.R. 629 (Bankr. E.D. Mich. 2003) In Herndon, the debtor took loans from her
ERISA-qualified retirement account and later filed for bankruptcy. The debtor defaulted on the repayment
of these loans and, based on Sixth Circuit precedent, was forbidden from repaying them under a chapter 13
plan that paid unsecured creditors less than 100%. The court held that the representative of the retirement
fund was not prohibited by the automatic stay from reporting the early distribution to the IRS.




                                                   32
Further Inquiry: Tax returns, account statements regarding publicly traded stocks.
Closely held interests may call for a review of the books, buy-sell agreements,
bankruptcy clauses, etc, or consultation with the client’s or company’s accountant.


Item B.15: Government and corporate bonds and other negotiable and non-
negotiable instruments.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review account statements.


Item B.16: Accounts receivable.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review of books, promissory notes and other records.


Item B.17: Alimony, maintenance, support, and property settlements to which the
debtor is or may be entitled. Give particulars.

Initial Inquiry and/or Document Review: Review judgments and applicable orders. If
a divorce or custody hearing is pending, make detailed inquiry or confer with the client’s
family law counsel. Inquire regarding whether obligor is in arrears.

Further Inquiry: None.

Practice Pointer: With respect to arrearages, the face amount should be disclosed in the
explanatory text and the factors used to discount that face value due to doubtful
collectability should be briefly identified. For the numerical value in the “Current value
of the debtor’s interest in property” column, counsel may make a good faith collectability
assessment and discount the face value accordingly.

If there is a matter pending in the state domestic relations court, ensure required
information is listed in Item 4.a. of the Statement of Financial Affairs.

In some jurisdictions, child support arrearages are not property of the estate because
ownership is in the child.

Item B18: Other liquidated debts owed to debtor including tax refunds. Give
particulars.

Initial Inquiry and/or Document Review: Explain liquidated debts, including tax
refunds, to client and inquire.



                                             33
Further Inquiry: Review documents, if any, which support underlying obligations.
Review last year’s tax refund, if any, and disclose an estimated amount for the current
year.

Practice Pointer: Under 26 U.S.C. § 1398, a debtor can elect to split the tax year into
two parts: the first period ending on the date prior to the filing of the petition and the
second period starting from the date of filing the petition to the end of the year. This
election presents various planning opportunities that counsel should consider and is very
useful if there are assets in the estate and the debtor has engaged in year-to-date activities
that resulted in prepetition tax liability.

Professional (usually attorney) retainers or other pre-paid items are a common source of
confusion and could be listed in several locations throughout Schedule B. The Best
Practices Working Group has selected Item 18, “Other liquidated debts,” for purposes of
this discussion. Assuming a retainer is not a flat fee that has been earned upon receipt,
and therefore is not property of the estate, funds in the client trust account of an attorney
retained by a debtor become property of the estate upon filing the bankruptcy petition
because the retainer belongs to the client until the funds are earned by the attorney.64
Therefore, the debtor should list any unearned retainers on his Schedule B as other
liquidated debts.

Additionally, it remains at issue whether an attorney with a prepetition retainer possesses
a secured lien for unpaid fees against such retainers and whether the debtor may be
required to list the attorney on Schedule D as a secured creditor.65


Item B.19: Equitable or future interests, life estates, and rights or powers
exercisable for the benefit of the debtor other than those listed in Schedule A – Real
Property.

Initial Inquiry and/or Document Review: Ask client if: a) any relatives have died and
left a surviving spouse; b) if there are any family trusts.

Further Inquiry: Review of court orders, settlements or documents, or circumstances
underlying the interest.


64
  See In re Hill, 355 B.R. 260 (Bankr. D. Or. 2006).
65
  See In re Printcrafters, 233 B.R. 113, 118 (D. Colo. 1999) (“[m]ost bankruptcy courts have concluded
that a prepetition retainer paid by a debtor to counsel for services in connection with a case is security for,
or held in trust for, payment of fees and costs to be incurred.” (citations omitted)); In re Golf Augusta Pro
Shops, Inc, 2003 WL 22176082, 2003 Bankr. LEXIS 2024 (Bankr. S.D. Ga. Aug. 28, 2003) (holding the
same, and noting that, regarding whether a conflict of interest exists, “there is an exception to § 327 where
the attorney holds a prepetition and postpetition claim for money owed for future bankruptcy services
and/or where the legal fees that accrued prepetition have been incurred solely for services rendered in
contemplation of and in connections with the bankruptcy case.”); In re Office Products of America, Inc.,
136 B.R. 964 (Bankr. W.D. Tex. 1992) (holding the same under Texas law.)


                                                      34
Practice Pointer: Be sure your client understands what is being asked. Most of the
terms used in this Item are legal and may be confusing to the client.


Item B.20: Contingent and noncontingent interests in estate of a decedent, death
benefit plan, life insurance policy, or trust.

Initial Inquiry and/or Document Review: Ask client if: a) any relatives have died and
left a surviving spouse; b) if there are any family trusts.

Further Inquiry: Review of court orders, settlements or documents, or circumstances
underlying the interest.

Practice Pointer: The term “Life insurance policy,” as used here, means a policy under
which the client is a beneficiary. If the client is the insured, rather than the beneficiary,
the policy should be scheduled at Item 9.


Item B.21: Other contingent and unliquidated claims of every nature, including tax
refunds, counterclaims of the debtor, and rights to setoff claims. Give estimated
value of each.

Initial Inquiry and/or Document Review: Ask if the client is: a) party to a lawsuit; b)
has any counterclaims pending; c) has any rights to sue anyone for anything, d) has
consulted with an attorney for any matter other than bankruptcy in the past two years.

Further Inquiry: Review facts and circumstances surrounding such claims. Contact
counsel handling any such claims.

Practice Pointer: Keep in mind claims that may have arisen from prepetition debt
collection activity, such as violations of the Fair Debt Collection Practices Act66 and state
laws governing debt collection.


Item B.22: Patents, copyrights, and other intellectual property. Give particulars.

Initial Inquiry and/or Document Review: Ask client

Further Inquiry: Obtain and review all patents, copyrights and trademarks. Consult
with IP counsel as necessary.




66
     See 15 U.S.C. § 1692 et seq.


                                             35
Item B.23: Licenses, franchises, and other general intangibles. Give particulars.

Initial Inquiry and/or Document Review: Ask client and ensure client understands the
nature of the interest subject to disclosure here.

Further Inquiry: Review related documents.

Practice Pointer: Counsel may consider whether to include occupational licenses here
and, if so, make appropriate inquiry.


Item B.24: Customer lists or other compilations containing personally identifiable
information (as defined in 11 U.S.C. § 101(41A)) provided to the debtor by
individuals in connection with obtaining a product or service from the debtor
primarily for personal, family, or household purposes.

Initial Inquiry and/or Document Review: Explain to client and inquire.

Further Inquiry: None

Comments: In some cases, the presence of a customer list or similar database should be
obvious, such as a business client that sells goods via the Internet. Be on guard, however,
that such lists can be involved in consumer cases. For example, a client might run an
open forum-style weblog and might have information about registered users.


Item B.25: Automobiles, trucks, trailers, and other vehicles and accessories.

Initial Inquiry and/or Document Review: Review title, if available, or other evidence
of liens. Perform online search if documents are electronically available. Inquire about
untitled vehicles.

Further Inquiry: Confirm values with Kelly Blue Book or other Internet source. Have
vehicle appraised if the client intends to redeem the property.

Comments: Check local rules for § 341 meeting documentation requirements.


Item B.26: Boats, motors, and accessories.

Initial Inquiry and/or Document Review: Review title, if available, or other evidence
of liens. Determine whether property is titled under state or federal law. Perform online
search if documents are electronically available. Inquire about untitled property. Inquire
whether client lives aboard.




                                            36
Further Inquiry: Confirm values with Internet, eBay, www.usedboats.com, or other
Internet resource. Have boat, motor, or accessories appraised if the client intends to
redeem the property.


Item B.27: Aircraft and accessories.

Initial Inquiry and/or Document Review: Request bills of sale and lien information
available to the client regarding aircraft and accessories. Request appraisals completed
regarding the aircraft or accessories. If no appraisal is available, perform a valuation of
the aircraft via online sources.

Further Inquiry: If feasible, obtain and review “title” for any aircraft and/or
accessories.

Practice Pointer: Obtaining “title” to an aircraft is not a simple process. The FAA
records are not available online and it is a tedious process to obtain them. Moreover, the
FAA may not have copies of all liens and bills of sale because the parties do not always
timely provide them. A company specializing in aircraft title searches may be the most
efficient way to determine the liens on the aircraft or accessories and the true owner of
these items.


Item B.28: Office equipment, furnishings, and supplies.

Initial Inquiry and/or Document Review: For individual clients, ask about items
purchased for more than a threshold, items purchased recently, antiques, electronics, and
insurance riders. For business clients, request a listing of relevant items.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through.


Item B.29: Machinery, fixtures, equipment, and supplies used in business.

Initial Inquiry and/or Document Review: Ask about items purchased for more than a
threshold value, items purchased recently, antiques, electronics, and insurance riders.

Further Inquiry: Obtain and review receipts or credit card statements setting out
purchase price, appraisals or eBay-type valuations, walk-through.


Item B.30: Inventory.

Initial Inquiry and/or Document Review: Ask client.




                                             37
Further Inquiry: Confirm consistency with response to Item 20 in the Statement of
Financial Affairs. Compare to Item 20 of the SoFA and understand any discrepancies.


Item B.31: Animals.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: None

Comments: Be sure that clients understand that family pets, even those without any
apparent monetary value, should be included here. Livestock may require a detailed
inventory as of petition date for § 552 purposes. Breeding stock may give rise to income.

Practice Pointer: Be sure your client provides expense information relating to pets for
inclusion in Schedule J.


Item B.32: Crops – growing or harvested. Give particulars.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: None

Comments: The attorney may want detailed documentation for § 552 purposes.
Consider photos or independent appraisal of crops on date of petition. Include quantity
and quality descriptions. Consider the effect of § 552 as to crops planted after filing.


Item B.33: Farming equipment and implements.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Detailed inventory of year, make, model and hours on each unit. Use
Internet sources for valuation. Photos of equipment at time petition filed. Consider
obtaining a prepetition appraisal.


Item B.34: Farm supplies, chemicals, and feed.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Consider photos or independent appraisal of supplies, chemicals and
feed on date of petition. Need quantity and quality descriptions.




                                            38
Item B.35: Other personal property of any kind not already listed. Itemize.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Inquire about such items as golf, tennis, health, club, and other
memberships; frequent flier miles; season tickets; lottery tickets.




                                           39
                                                 Section 5

                     Schedule D: Creditors Holding Secured Claims
                Schedule E: Creditors Holding Unsecured Priority Claims
              Schedule F: Creditors Holding Unsecured Nonpriority Claims


5.1.     General Comments and Inquiry Recommendations

Certain aspects of the attorney’s inquiry are common to Schedules D, E and F, while
others warrant unique consideration. The Best Practices Working Group’s discussion
here reflects these commonalities and distinctions, with general considerations discussed
first and, in the “Commentary” section, the Working Group presents issues unique to
each of Schedules D, E and F.

Initial Inquiry and/or Document Review: Ask client and request all documentation the
client has regarding debts. Regarding debts that are contingent, unliquidated or in
dispute, ask the client in simple terms whether the client believes he or she should not
have to pay any of the debts. Review documents to determine when the debts were
incurred. If documentation is not available, ask client.

A review of the client’s credit report is an emerging trend among attorneys and may
become the standard practice. The Best Practices Working Group believes this is a
positive development both because of the breadth of information available and because
most consumer clients can access the report without charge via the Federal Trade
Commission website.67 The Working Group suggests that attorneys incorporate this
practice as part of their customary reasonable inquiry and, that attorneys should be able to
rely on the information obtained from credit reports without further inquiry.68

Further Inquiry: If the client has filed another bankruptcy case within the prior year, or
such other time frame that the attorney determines is appropriate under the
circumstances, the attorney should retrieve the schedules from that case and compare the
lists of creditors to ensure full disclosure.

If the client indicates that any debt is contingent, unliquidated or in dispute, inquire
whether the debt is the subject of a judicial or other proceeding and determine, to the
extent possible, whether the client has a claim against the other party.
67
   Credit reports are available at http://www.annualcreditreport.com or through the FTC’s website,
http://www.ftc.gov.
68
   See Task Force Report on § 707(b)(4), supra n.1 at 710. See also, In re Debtor’s Attorney Fees in
Chapter 13 Cases, 374 B.R. 903, 907 (Bankr. M.D. Fla. 2007) (apparently recognizing the importance of
credit reports by allowing attorneys practicing before the Middle District of Florida to charge debtors for
the expense of obtaining the debtor’s most recent credit report); In re Habiballa, 337 B.R. 911 (Bankr. E.D.
Wisc. 2006) (where debtor relied exclusively on his credit report in scheduling his credit card indebtedness,
the court granted the debtor’s objection to a proof of claim to the extent it claimed a higher amount than the
amount listed in the debtor’s schedules).




                                                     40
Practice Pointers: The phrasing of questions in this item of inquiry can make a great
deal of difference in how the client understands what information the attorney is seeking.
Many clients will not understand the technicalities of whether a debt is contingent,
liquidated or in dispute, but clients usually are well aware of debts they think they should
not have to pay.

General Comments: The timing of obtaining a credit report should be left to the
attorney’s judgment on a case-by-case basis. Some clients may present a complicated
financial situation that will take time to sort out and, if the report is pulled early in the
representation, the report may be dated by the time the case is actually commenced.
Other clients may have no documentation regarding their debts or may strike the attorney
as being less than candid, making the report a valuable tool in completing the schedules.

The Best Practices Working Group has no comment on the various notice provisions in §
342, which were enacted as part of BAPCPA other than to remind attorneys of the
changes and to make appropriate inquiry regarding addresses for notice to creditors.


5.2.     Comments on Schedule D

The degree of document review will depend on the type of collateral and the
circumstances of the case. For real property, attorneys should obtain proof of recordation
and the payoff amount at or near the time the petition is filed. The Best Practices
Working Group believes that a title report is generally not necessary unless the facts of a
specific case suggest otherwise. Similarly, for titled and UCC-1 property, the attorney
should obtain proof of the lien, if available, and the payoff amount at or near the time the
petition is filed.

In individual cases, clients might have credit cards in which the issuing retailer takes a
security interest in items purchased at the store with the credit card. Sears is a common
example. The Best Practices Working Group believes that prepetition review of these
arrangements is not necessary. Most consumers do not have the underlying agreement
and the value of the property is often low.

If a secured creditor has retaken collateral and the client’s equitable right of redemption
has expired, the debt should not be listed in Schedule D.69 Deficiencies belong in
Schedule F or, in certain circumstances, Schedule E.

If the item has been given to the client as a gift or if the client is a co-signor without any
interest in the collateral, the debt should not be listed on Schedule D. It is an unsecured
debt as to the client and should be listed on Schedule F.



69
  The property, likewise, should not be listed in Schedule A or B, as the case may be, but should be
included in Item 5 (repossessions, foreclosures and returns) of the Statement of Financial Affairs.


                                                    41
5.3.     Comments on Schedule E

The extent of inquiry regarding priority claims will depend on the circumstances. For
clients whose incomes are below the state median and whose cases will result in a “no
asset” report, the expense of a detailed inquiry may not be justified. This is especially
true with respect to tax claims, where separating the amounts entitled to priority from
those that are not can be complicated and time consuming, and may be more easily
accomplished after the bankruptcy case has been commenced.

A more searching analysis is required, however, for clients where 1) income is above the
state median, 2) debts are primarily consumer debts, and 3) the case will proceed under
chapter 7. Priority debt is calculated into the means testing formula and, if done
improperly, could lead to a motion to dismiss the client’s case as abusive.

For all clients, the attorney should make reasonable efforts to determine whether debts
that appear to be priority debts are actually secured by a lien on property. To the extent
there is security, the debt should be listed on Schedule D. Where the debt has secured
and priority aspects, attorneys should be careful when listing the amount of each to avoid
improperly overstating the total amount owed.

Further inquiry in other cases should be left to the discretion of the attorney. In some
cases, for example, the client may be better served by allowing the priority determination
to proceed through a contested proceeding after the case is filed. In others, a more
searching pre-filing inquiry may be necessary based on the client’s needs, goals and
financial circumstances.

The Best Practices Working Group also notes that some attorneys confuse priority debts
with those that are not dischargeable but not entitled to priority. Only three types of
debts fit both categories: certain tax debts, domestic support obligations and certain
personal injury claims resulting from the client’s operation of a motor vehicle while
under the influence.70 Student loans owed to the government, for example, are not
priority debts, but they are nondischargeable. Similarly, property settlements in divorce
proceedings should not be confused with domestic support obligations; both types of debt
are nondischargeable, but only the latter has priority status.

As a general rule, the IRS and the state taxing authority should always be scheduled,
especially in chapter 13 cases. This will ensure notice to the taxing authority and put the
onus on it to file a claim and start the process of resolving what amounts are owed and
whether those amounts are secured, priority or general unsecured debts. Scheduling these
tax authorities also protects the client who does not realize that he or she has outstanding
tax liability.


70
  Note that although these three types of debt are entitled to § 507(a) priority and are nondischargeable
under § 523(a), their character under either statute may differ. For example, if a debtor caused personal
injury while operating an aircraft under the influence, the debt is nondischargeable but not entitled to
priority.


                                                     42
5.4.   Comments on Schedule F

The Best Practices Working Group recognizes that credit cards pose a problem in
identifying the “date incurred” as the Schedule F calls for.




                                          43
                                               Section 6

                Schedule G: Executory Contracts71 and Unexpired Leases

Initial Inquiry and/or Document Review: Ask client in plain language and exercise
judgment regarding information the client provides for other purposes, such as income
from rental property.

If the client is a business, ask about equipment that is commonly leased and contracts that
are common, such as business premises or copy machine leases or contracts for regular
delivery of water for the office cooler.

Further Investigation: If the client responds affirmatively or, in the attorney’s
judgment, there is an executory contract or unexpired lease, request relevant
documentation from the client. If there are no documents, ask the client for the terms.

Practice Pointer: Clients often think of bankruptcy in terms of debts, which doesn’t
capture all of what Schedule G requires. They will better understand the type of
information required for Schedule G if examples are given. Some items to suggest as
examples and to be on the lookout for include:

     •    Household goods acquired from “rent-to-own” retailers
     •    Property acquired through a lease rather than a sale72
     •    Land contracts
     •    Real property the client leases as the client’s residence (including mobile home
          lots)
     •    Real property the client leases to others for residential or commercial purposes
     •    Farm land the client operates but which is owned by another person
     •    Unperformed contracts for services the client provides for extra income, such as
          home improvement or car repair
     •    Personal property, such as a car, equipment from a failed business or sporting
          equipment, the debtor permits another to use on a continual basis in exchange for
          consideration
     •    Property on consignment



71
   “Congress intended the term [executory contract] to mean a contract ‘on which performance remains due
to some extent on both sides.’” NLRB v. Bildisco, 465 U.S. 513, 523 n.6 (1984) quoting H.R. Rep. No. 95-
595, p. 347 (1977). “More precisely, a contract is executory if ‘the obligation of both parties are so
unperformed that the failure of either party to complete performance would constitute a material breach and
thus excuse the performance of the other.’” Unsecured Creditors’ Comm. v. Southmark Corp. (In re
Robert L. Helms Constr. and Dev. Co. Inc.), 139 F.3d 702, 705 (9th Cir. 1998) quoting Griffel v. Murphy
(In re Wegner), 839 F.2d 533, 536 (9th Cir. 1988).
72
   Because of variances among jurisdictions and in the facts presented from one case to the next, the Best
Practices Working Group makes no comment on transactions that have the appearance of being leases but
which may in fact be secured transactions. Counsel should inquire in accordance with controlling
precedent and local practice and custom.


                                                    44
Schedule G disclosures will often trigger, or be triggered by, disclosures required in other
Schedules or in the Statement of Financial Affairs.73




73
  For example, in his 1999 study, Judge Rhodes found that 122 debtors listed rent as an expense in
Schedule J (107 for a residence and 15 for a mobile home lot). Of those, 85 percent (88 percent for
residential renters, 67 percent for those leasing mobile home lots) failed to disclose the lease on Schedule
G. In addition, 81 percent of these debtors listed no security deposit in Schedule B. Hon. Steven W.
Rhodes, An Empirical Study of Consumer Bankruptcy Papers, 73 Am. Bankr. L.J. 653, 667-68, 666 (1999).


                                                    45
                                         Section 7

                                 Schedule H: Codebtors

Initial Inquiry and/or Document Review: Ask the client if any other person is
obligated under any debt listed in Schedules D, E or F, or if the client has co-signed or
guaranteed someone else’s debt.

Further Inquiry: If the client’s case will proceed under chapter 13, determine whether
the subject debt is a consumer debt for purposes of the co-debtor stay.

Practice Pointer: Individual clients may not be candid about co-debtors, especially if
the obligation involves a family member. The client might be ashamed and assume that
the bankruptcy can be kept secret if the codebtor isn’t disclosed. Some clients might try
to protect the other person by “keeping them out” of the bankruptcy. Divorced clients
may likewise wish to hide the fact of the bankruptcy from the former spouse or may not
realize that the domestic relations court cannot alter either spouse’s legal liability on a
debt.




                                             46
                                                Section 8

                   Schedule I: Current Income of Individual Debtor(s)
                Schedule J: Current Expenditures of Individual Debtor(s)


8.1.     General Comments

Generally speaking, much of the information needed to complete Schedules I and J is
also necessary for disclosures in other forms discussed in this Best Practices Working
Paper and, therefore, the inquiry and document review are substantially similar.74 For
example, child support that the client receives must be listed here, in Form 22 and in Item
2 of the Statement of Financial Affairs. Attorneys should check for consistency across
forms insofar as the information ought to be consistent; 75 inconsistency could give rise to
investigation by the trustee or United States Trustee.

Note that Schedules I and J require information about spouses irrespective of whether the
case will be filed by both spouses jointly or by just one of the spouses, unless the couple
is separated. Attorneys should be prepared to deal with the resistance some non-filing
spouses exhibit in providing information.

Regarding income, attorneys should be clear about whether the client is utilizing
historical averages or projected income in supplying information for Schedule I. That
information will likely be relevant to the trustee. By the same token, itemization of
expenses that are out of the ordinary is useful.

Clients need to be clear on what is and is not income. Gifts should not be included, but
regular contributions to the client’s household should be included.76 Remember also that
clients may not be candid about all sources of income. They might also be less than
forthcoming with expenses. Attorneys can look for clues to ferret out information, such
as where a client is months behind on bills despite a showing of available cash when
income less expenses is determined.

Finally, a note on the relationship between Form 22 and Schedules I and J is warranted.
The six-month look-back period for “current monthly income” creates several distinct
issues when determining whether a presumption of abuse arises and whether a debtor has
projected disposable income. This determination depends on the definition of “current

74
   A key difference, however, is that Schedule I is based on an estimated average or projected monthly
income, measured at the time the case is filed. By contrast, Form 22 income follows the “current monthly
income” formula set out in the means test.
75
   The facts may dictate inconsistency. Again using the child support example, if the obligor stopped
paying four months ago, Form 22 will include the two months that were paid, with the amount averaged
over six months. Schedule I, on the other hand, will reflect the current circumstance, i.e., that no child
support is currently being received. Expenses present an even starker example because Form 22 relies on
figures from the Internal Revenue Service while Schedule J utilizes actual expenses.
76
   A declaration from the donor of gratuitous contributions may be in order for other purposes in the
representation, such as plan feasibility or approval of reaffirmation agreements.


                                                    47
monthly income,” which has been colloquially described as being “not current, not
monthly and not income” and it can create the appearance of monthly income that is not
in fact available to the client. On the other hand, the “current monthly income” definition
can create an opportunity for prepetition income manipulations by, for example, taking an
unpaid leave of absence from work, refusing formerly welcomed overtime or quitting a
job.77

Thus, courts might look to Schedule I (and correlatively, regarding the means test’s
expense formula, to Schedule J) to ascertain the individual debtor’s true income and
expense circumstances.78 However, there are decisions, mainly in chapter 13 cases, in
which courts have held that they lack the authority to review Schedules I and J, a
conclusion seemingly compelled by the Code’s plain language.79




77
  In re Johnson, 346 B.R. 256, 264 (Bankr. S.D. Ga. 2006), citing Culhane & White, Catching Can-Pay Debtors: Is
the Means Test the Only Way?, 13 Am. Bankr. L. Rev. 665, 689 (2005).
78
   See, e.g., In re Edmunds, 350 B.R. 636 (Bankr. D.S.C. 2006) (court rejected mechanical application of
Form 22C); and In re Kibbe, 342 B.R. 411 (Bankr. D.N.H. 2006) (same).
79
   See In re Farrar Johnson, 353 B.R. 224 (Bankr. N.D. Ill. 2006), In re Rezentes, 368 B.R. 55 (Bankr. D.
Haw. 2007), In re Dalton, 2007 WL 4554024, 2007 Bankr. LEXIS 4387 (Bankr. S.D.Miss. Dec. 19, 2007).


                                                       48
8.2.       Schedule I: Current Income of Individual Debtor(s)


Marital Status; Dependants of Debtor and Spouse

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Inquire whether someone other than the client’s spouse or children
qualifies as a dependent of the client or review tax returns. Note the age and birth date
for minor children. Review divorce judgments to determine allocation of dependent
status.

Comments: Information provided should be consistent with Form 22. Generally,
attorneys should be able to rely on what clients tell them regarding spouses and children.
Do not disclose names of minor children.80


Employment

Initial Inquiry and/or Document Review: Ask client or review payment advices.

Further Inquiry: Review payment advices.

Practice Pointer: If the client receives regular income from the operation of a business,
profession or farm, that income should be listed at Line 7 and appropriate disclosure
should be made at Item 1 of the Statement of Financial Affairs.


Line 1: Monthly gross wages, salary, and commissions

Initial Inquiry and/or Document Review: Review income tax returns or transcripts,
payment advices, employment contracts and W-2 and 1099 forms.

Further Inquiry: Inquire whether the client’s income is expected to change over the
next year.


Line 2: Estimate monthly overtime

Initial Inquiry and/or Document Review: Review past pay information.

Further Inquiry: Inquire whether client anticipates any changes on a going-forward
basis.



80
     11 U.S.C. § 112.


                                            49
Line 4: Payroll Deductions

Initial Inquiry and/or Document Review: Review payment advices..

Further Inquiry: Review income tax returns or transcripts for current and prior years,
client’s W-4 form. Review employment manuals or obtain a statement from the client
regarding mandatory deductions.

Practice Pointer: Accurate information about current payroll deductions should be
given regardless of the nature of the deductions. Whether or not a deduction should be
included as part of the client’s current monthly income or disposable income (either
because of its type or amount) should be dealt with elsewhere (for example, Line 17).


Line 7: Regular income from operation of business or profession or farm

Initial Inquiry and/or Document Review: Review income tax returns including
Schedule C and K-1 and Form 1120, business bank statements and profit and loss
statements.

Further Inquiry: The form requires that a detailed statement be attached.

Practice Pointers: Attorneys should exercise professional discretion in obtaining
relevant information and may want to consider listing the efforts undertaken including
whether the client used the prior year’s tax return or IRS Schedule C.

The District of Oregon has local forms that must be filed and which could be used by
attorneys in other jurisdictions to meet the specificity requirement.


Line 8: Income from real property

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review lease/rental agreements, income tax returns and bank
statement.

Comment: The client’s interest in the property should be included in Schedule A and
any lease/rental agreements should be included in Schedule G.


Line 9: Interest and dividends

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review income tax returns, broker statements and bank statements.



                                           50
Comment: Be sure to make related disclosures in Schedule B and the Statement of
Financial Affairs.


Line 10: Alimony, maintenance or support payments payable to the debtor for the
debtor’s use or that of dependents listed above

Initial Inquiry and/or Document Review: Review divorce judgments and related
documents, including modifications. Note birth dates of minor children.

Further Inquiry: Determine whether the obligor is currently making payments and
whether there is any arrearage.

Practice Pointer: Where payments current, one is likely due to the client at time of
filing. Attorneys should schedule and exempt that expected payment.


Line 11: Social security or government assistance

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review bank statements, payment advices or benefit award
determination letters.

Comment: Note that the form requires that the client specify the source or type of
payment. For purposes of Form 22, certain payments under the Social Security act are
not included in “current monthly income.”81


Line 12: Pension or retirement income

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review bank statements, income tax returns, payment advices or
benefit determination award letters.

Comment: Include relevant information in Item 12 of the Schedule B.




81
     See 11 U.S.C. § 101(10A)(B).




                                           51
Line 13: Other monthly Income

Initial Inquiry and/or Document Review: Inquire regarding family assistance received
on a routine basis, inheritances, life insurance benefits, annuities, disability income and
structured settlements.

Further Inquiry: Family assistance should be documented.


Line 17: Describe any increase or decrease in income reasonably anticipated to
occur within the year following the filing of Schedule I

Initial Inquiry and/or Document Review: Ask client about expected bonuses, health
issues (including childbirth), retirement, changes in job status and contingent benefits,
such as workers’ compensation or social security, which the client may begin to receive
over the next year.

Further Inquiry: None




                                            52
8.3.   Schedule J: Current Expenditures of Individual Debtor(s)


Line 1: Rent or home mortgage payment (include lot rented for mobile home)

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review current mortgage statement or lease agreement, bank records
or receipts. Inquire whether taxes and insurance are included in the mortgage payment.

Practice Pointer: Because the amounts paid for rent or a mortgage will likely exceed
$600, these payments should be disclosed in Item 3 of the Statement of Financial Affairs.


Line 2: Utilities

Initial Inquiry and/or Document Review: Get an average from the client.

Further Inquiry: If expenses seem out of line with local standards, secure 12-month
data from utility providers’ websites or client’s checking account.

Practice Pointer: Local practice and custom may bear on whether certain expenses are
considered to be utilities, such as cell phones.


Line 3: Home maintenance (repairs or upkeep)

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: None.

Practice Pointer: Local practice or custom may determine what can be properly listed.
Items that might be included are association dues, garbage collection, security systems,
yard work, pest control, wood or oil for heating the home and repair or replacement of
older appliances and furniture. Remember that some clients may have put needed work
off because of cost.


Line 4: Food

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Consider age and health of the client and any dependents, special
dietary needs.




                                           53
Practice Pointer: Commonly overlooked items include snacks, food eaten out, baby
formula, lunch money for children, food for family pets and alcohol (but not cigarettes).
In addition, the reality for many individual debtors is that some non-food items, usually
trivial in amount, are purchased at the grocery store and will be captured in this Item.


Line 5: Clothing

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Consider age, health and occupational demands of the client and all
dependents.


Item 6: Laundry and dry cleaning

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Consider age, health and occupational demands of the client and all
dependents.

Practice Pointer: Clients commonly overlook this Item’s expenses although everyone
has them.


Line 7: Medical and dental expenses

Initial Inquiry and/or Document Review: Ensure client understands the full range of
what this Item encompasses and ask client.

Further Inquiry: Review receipts and invoices from service providers. Note all health
issues relating to the client and dependents.

Practice Pointer: Commonly overlooked items include deductibles and other charges
not covered by insurance, eye exams, glasses, contact lenses and solution, over the
counter medications, lab work, birth control, gym or health club memberships and items
relating to special needs of the client or a dependent.


Line 8: Transportation (not including car payment)

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review the average miles driven per year and compute with miles per
gallon based on type of vehicle, age and condition. Inquire whether any major repairs are
needed. Inquire whether any personal property taxes are due.



                                            54
Comments: Clients commonly forget about oil changes, repairs, tires and other
maintenance issues, as well as registration, titling and inspections. There are also
transportation expenses unrelated to cars, such as taxi, bus, train and subway fares.


Line 9: Recreation, clubs and entertainment, newspapers, magazines, etc.

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review source documents, if any.

Comment: Local practice and custom may determine the reasonableness of expenses.

Practice Pointer: Commonly overlooked expenses include those relating to hobbies,
sporting events, books, club dues, vacation travel, movies (whether bought, rented or
seen at the theater), gambling (including lotteries, casinos, bingo, etc.) and children’s
activities such as scouting, summer camp, sports participation, extracurricular activities
and gifts for birthday parties.


Line 10: Charitable contributions

Initial Inquiry and/or Document Review: Ask client, including questions about tithing
and contributions to recognized charities and neighborhood or community organizations.

Further Inquiry: Review income tax returns, pay stubs.

Comment: Be sure to include the relevant information in Form 22 and Item 7 of the
Statement of Financial Affairs and check for consistency.


Line 11: Insurance (not deducted from wages or included in home mortgage
payments)

Initial Inquiry and/or Document Review: Ask client about life, health, auto, renter,
burial and other insurance.

Further Inquiry: For homeowners’ insurance, review the policy, statement and
declaration page, or the client’s most recent invoice.

For life insurance, review the policy and the last statement of the issuer. Review
payment advices reflecting any deduction for premiums.

For health insurance, review payment advices reflecting deductions for premiums and
review current statement from the provider.



                                             55
For auto insurance, review a current statement from the insurance provider or the client’s
most recent invoice.

Practice Pointer: The attorney should note whether life insurance has a cash or
surrender value and make the appropriate disclosure in Item 9 of Schedule B.
Irrespective of type, if married clients are filing a joint petition, Schedule B should reflect
whether the clients are the beneficiaries under their spouses’ policies at Item 20.


Line 12: Taxes (not deducted from wages or included in home mortgage payments)

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review prior year’s tax returns or transcripts, statements from taxing
authorities. For property taxes not included in the client’s mortgage payment, review tax
statements or, if available, check the taxing authority’s website. If client is self-
employed, review Form 1040ES.

Comment: If the client is not receiving a paycheck and is self-paying, attorneys should
be able to rely on the client, at least going forward. When looking back, review Form
1040 ES and copies of checks to determine the amount paid. Back taxes owed also need
to be listed on Schedules D, E or F, or a combination thereof.


Line 13: Installment payments

Initial Inquiry and/or Document Review: Review promissory notes, security
agreements, installment sales contracts and payment coupon books for all secured debts
paid in installments. The commentary in Section 5, Schedule D of this Working Paper
also outlines the scope of the initial inquiry for this Item.

Further Inquiry: In a chapter 7 case, installment payments included here should be
consistent with property to be retained on the statement of intention.

Practice Pointer: Inclusion of installment payments on this Item may vary by district
and by chapter. Determine local practice standards for completion of this Item.


Line 14: Alimony, maintenance and support paid to others

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Review divorce judgment and any modifications, tax returns.




                                              56
Practice Pointer: Determine whether there is any arrearage and list that on Schedule E
or Schedule F, as the case may be.


Line 15: Payments for support of additional dependents not living at your home

Initial Inquiry and/or Document Review: Determine if client makes payments of this
type and, if so, identity and relationship of recipient and frequency, regularity and amount
of payments.

Further Inquiry: Determine if the recipient of the payments is actually a “dependent”
under applicable legal standards (parent, able-bodied, non-student adult child, disabled
relative, etc.)

Practice Pointer: Determine local practice standards for completion of this Item.


Line 16: Regular expenses from operation of business, profession or farm (attach
detailed statement)

Initial Inquiry and/or Document Review: Review income tax returns including IRS
Schedule C and K-1 and Form 1120, business bank statements and profit and loss
statements.

Further Inquiry: The form requires that a detailed statement be attached.

Practice Pointers: Attorneys should exercise professional discretion in obtaining
relevant information and may want to consider listing the efforts undertaken including
whether the attorney used the prior year’s tax return or Schedule C.

The District of Oregon has local forms that must be filed, which could be used by
attorneys in other jurisdictions to meet the specificity requirement.82


Line 17: Other

Initial Inquiry and/or Document Review: Inquire what the expense item is, the
amount, frequency and regularity.

Further Inquiry: Confirm responses with checking account register or other document
review.

Practice Pointer: This catch-all item is a good place for things like school lunches, pet
food and care, auto registration fees and related items. Each item should be clearly

82
  The District of Oregon form is “Exhibit D-2” and is available at
http://www.orb.uscourts.gov/orb/Documents.nsf/(in)?OpenView.


                                                    57
labeled and pro rated to the monthly amount. Confirm local practice as some
jurisdictions frown on inclusion of items such as gifts and savings for chapter 13 cases.




                                            58
                                                Section 9

                                  Statement of Financial Affairs


Item 1: Income from employment or operation of business

Initial Inquiry and/or Document Review: For employment income, obtain and review
income tax returns, W-2’s, 1099’s, IRS Schedule C and year-to-date reports, if available.
If the client is an individual and is in business, or is the sole or controlling owner of a
limited liability company, corporation or other entity, obtain and review tax returns for
the entity, but disclose information for the client only. Disclose information for: a) the
current year to date; and b) the two calendar years immediately preceding the current
year.83

Further Inquiry: As needed, depending on results of minimum investigation. Obtain
statements or other documents confirming all income streams from employment, business
or trade.

Practice Pointers: Confirm that information on this item matches source documents.
Retain work copies of source documents showing internal calculations and other work
product from which information was derived or that substantiates how counsel chose to
disclose it. Compare information disclosed on this Item with information provided on
Schedules I and Form 2284 for consistency to the extent the information ought to be
consistent.85




83
   In United States v.Naegele, 341 B.R. 349 (D.D.C. 2006), the court held that the instructions to this Item
were so “fundamentally ambiguous” that the debtor’s (a lawyer) responses were insufficient to support
criminal charge under 18 U.S.C. § 153(3). The debtor had disclosed the gross income that the debtor, as an
individual, had received from the business (gross from business operations less expenses) rather than the
gross income of the business. The court observed that “the language of the question suggests that the
debtor is, as defendant maintains, supposed to report his ‘take home’ income from the operation of his
business.” Id. at 356-57. Although the law practice was a sole proprietorship and the gross of the business
operations was reported on Schedule C, the court concluded that the gross income the individual received
from the business, as shown on Line 12 of Form 1040, was the proper amount to be disclosed on the Item 1
of the SoFA.
84
   For convenience, the Best Practices Working Group uses “Form 22” to refer to Form 22A (chapter 7),
Form 22B (chapter 11) and Form 22C (chapter 13).
85
   “Income” is not necessarily a uniform term across the Statement of Financial Affairs, Schedule I and
Form 22. For example, Form 22 has a six-month lookback, irrespective of when a case is commenced, and
the income is averaged. The SoFA, on the other hand, divides income by calendar year. Thus, a client who
earned $2,000 per month, but who became unemployed on February 1 and filed a bankruptcy case in March
would list income differently in the various forms. The SoFA would list $4,000 for the current year and
$24,000 for the prior calendar year. By contrast, the client’s “current monthly income” on Line 3 of Form
22 would be $1,333.33 ($2,000 x 4 months / 6), which, on a year-to-date basis, differs from the SoFA.
Schedule I would be different still; in the simple hypothetical, income would be zero.


                                                    59
Item 2: Income other than from employment or operation of business

Initial Inquiry and/or Document Review: For income other than from employment,
ask the client about social security, SSI, pensions, AFDC, food stamps, child support,
investments, rental income and any other income streams. Review the income tax returns
for prior years’ refunds,86 rental income, capital gains, pension distributions and any
other types of income. Disclose information for a) the current year to date; and b) the
two calendar years immediately preceding the current year.

Further Inquiry: As needed, depending on results of minimum investigation. Obtain
statements or other documents confirming all income streams.

Practice Pointers: Confirm that information on this item matches source documents.
Retain work copies of source documents showing internal calculations and other work
product from which information was derived or that substantiates how counsel chose to
disclose it. Compare information disclosed on this Item with information provided on
Schedules I and J and Form 22 for consistency to the extent the information ought to be
consistent.87


Item 3: Payments to creditors

Initial Inquiry and/or Document Review: Counsel should obtain and review checking
account register(s) and bank statements for the last 12 months. For Item:

     •   3(a) (primarily consumer debts),88 look for aggregate payments in excess of $600
         within the last 90 days;

     •   3(b) (not primarily consumer debts), look for aggregate payments in excess of
         $5,47589 within the last 90 days;

     •   3(c) look for and ask client if any relatives or other specifically defined categories
         of per se “insiders,” per § 101(31), are creditors.

Counsel should ask clients if the client has: a) granted any liens or security interests to
any creditor within the past 90 days including real estate refinance transactions; and b)
used new credit to pay old debt.

Further Inquiry: Counsel should request copies of cancelled checks, receipts or money
orders documenting all payments where the client’s finances are complex or where the

86
   See, e.g., Jensen v. Groff (In re Groff), 216 B.R. 883 (Bankr. M.D. Fla. 1998) (discharge denied where,
among other things, debtor failed to disclose $50,000 tax refund received).
87
   See n.85, supra.
88
   See Section 1.4.3, supra, for a discussion of “primarily consumer debts.”
89
   The preference floor for transfers on debts that are not primarily consumer debts is subject to triennial
adjustment pursuant to § 104(b). The last such adjustment occurred in 2007.


                                                     60
information provided by the client suggests that the attorney should probe more deeply.
The latter is especially true where transferees are or may be insiders.

Comment: Preliminary determination of insider status can be particularly troublesome
and fact intensive. Collier’s suggests that the scope of counsel’s inquiry regarding
insiders should be:

         [T]he attorney should probe the debtor or its principals to determine who
         might fall within this definition. Indeed, the attorney has a general
         obligation to probe the debtor regarding transactions and transfers in
         general, but must be particularly diligent in probing with regard to
         transactions with insiders. This is necessary not only because debtors or
         their principals often attempt to conceal such transactions, but also
         because of debtors’ obligations to their creditors. Similarly, the attorney
         should also probe for facts relating to affiliates, board members, and
         creditors.90

Adding to the complexity of this inquiry is the fact that although “insider” is a defined
term,91 it does not lend itself to a precise definition that can be easily applied to the facts
of the case at hand. The definition extends only to specific categories of “per se” insiders
and the case law has expanded the meaning of “insider” beyond the entities expressly
mentioned in the statute.92 Accordingly, the courts will look at the nature of the
relationship between the debtor and the other person, including whether the relationship
puts the person in a position to exercise some degree of control or influence over the
debtor.93 As the case law demonstrates, persons who are “per se insiders” that is, a


90
   Collier on Bankruptcy, 15th Ed. Revised, ¶ 101.31.
91
   Section 101(31) of the Code expressly includes relatives, officers, partners and other specific entities
within the term, but that section’s use of “‘insider’ includes” means that the list presented is not exhaustive.
See 11 U.S.C. § 102(3) (“includes” is not a limiting term). The legislative history of the 1978 Code defines
an insider as a person or entity with “a sufficiently close relationship with the Debtor that his conduct is
made subject to closer scrutiny that those dealing at arm's length with the Debtor.” H.R. Rep. 95-595, 1978
U.S.C.C.A.N. 5963, 6269 (1977).
92
   See Kunz v. United Sec. Bank (In re Kunz), 489 F.3d 1072 (10th Cir. 2007).
93
   The inquiry into whether a person is an insider focuses on the nature of the relationship between the
purported insider and the debtor. Wake Forest v. Transamerica Title Ins. Co. (In re Greer West Inv. Ltd.
P'ship), 1996 WL 134293, 1996 U.S. App. LEXIS 8495 (9th Cir. Mar. 25, 1996). Accordingly, the courts
will look at the nature of the relationship, including “whether the relationship in question is fraught with the
same potential for improper influence as the relationships specifically enumerated in the statute.” Id. citing
In re Gilbert, 104 B.R. 206, 210 (Bankr. W.D. Mo.1989). For example, one court has noted that although
relatives do not necessarily exercise any “formal” control over the debtor's affairs, Congress nonetheless
included relatives as insiders “because of the high probability that transactions between relatives will be
motivated by affinity rather than independent business judgment.” Three Flint Hill Ltd. P'ship v.
Prudential Ins. Co. (In re Three Flint Hill Ltd. P'ship), 213 B.R. 292, 299-300 (D. Md. 1997). The court
continued: “Clearly, then, Congress did not intend the insider determination to rest on a finding of actual
control, but a finding that, given the relationship and conduct of the parties, the relevant transaction or
arrangement was entered into based on that relationship rather than an independent purpose or
motivation.” Id. at 300. See also Freund v. Heath (In re McIver), 177 B.R. 366, 370 (Bankr. N.D. Fla.
1995) (“A business, professional, or personal relationship, that compels the conclusion that the transferee


                                                      61
person whose relationship with the client is expressly included in the § 101(31)
definition, may in the end be found not to be insiders. Moreover, because the question of
whether someone is an insider is highly fact dependent, it has produced answers that
seem counterintuitive at first blush. There are decisions, for example, applying the
“insider” label to former spouses,94 live-in partners95 and attorneys,96 while other cases
show that first-degree relatives,97 directors98 and current spouses99 may not be insiders.

Practice Pointers: Ordinary course payments, such as an individual’s house payment,
can be disclosed in summary fashion, such as “ordinary monthly mortgage payment of
$1,500.”

Rather than spend significant time and resources on making anything more than a
preliminary determination as to insider status, a better approach is to simply err on the
side of disclosure and include language such as “potential insider” or “insider status
uncertain” in order to avoid making an admission of the recipient’s status as an insider or
non insider.

Attorneys need to balance the requirements of accuracy against the practicalities of
preparing bankruptcy documents when it may take several weeks or even months
between the initial draft of the schedules and other documents and commencement of the
case. The purpose of Item 3 is to enable the trustee to discern preferences and fraudulent
conveyances. Consequently, in the case of repetitive regular payments to creditors
scheduled, it is acceptable to note generally that the debtor has made regular payments in
the ordinary course to creditors scheduled. In choosing this method of disclosure, the
attorney should be satisfied that these are regular payments and that the payments were
made in the ordinary course. In most consumer cases such payments will include the
mortgage payment, the car payment, utilities payments, and, to the extent that they are
regular, monthly credit card payments.

could be able to gain an advantage such as that attributable simply to affinity, would result in the transferee
being classified as an insider.”).
94
   See, e.g., Matter of Holloway, 955 F.2d 1008 (5th Cir.1992) (ex-wife was an insider).
95
   In re McIver, 177 B.R. 366 (B.N.D.Fla.1995) (live-in girlfriend had relationship “close enough to gain an
advantage attributable simply to affinity”) quoting In re Friedman, 126 B.R. 63 (9th Cir. B.A.P. 1991).
Compare Hunter v. Dupuis (In re Dupuis), 265 B.R. 878 (Bankr. N.D. Ohio 2001) (debtor and former
spouse continued to share marital home; court held that that relationship, standing alone, did not make
former spouse an insider).
96
   See, e.g., In re Daddy's Money of Clearwater, Inc., 187 B.R. 750 (M.D. Fla.1995) (debtor's attorney was
an insider with respect to funds the attorney disbursed to himself from money held in trust for debtor). As
one court recently noted, however, where attorneys are held to be insiders, “that status has been imposed
because of a relationship with the debtor that transcended the normal attorney-client boundaries.”
Glassman v. Heimbach,, Spitko & Heckman (In re Spitko), 2007 WL 1720242, *10, 2007 Bankr. LEXIS
2050, *27, (Bankr. E.D. Pa. June 11, 2007) (citations omitted).
97
   See, e.g., In re Anderson, 165 B.R. 482 (Bankr. D. Or.1994) (debtor's brother, as representative of their
mother’s estate, obtained a state court judgment lien against debtor; brother was not an insider due to actual
hostility between him and the debtor).
98
   See, e.g., In re Kunz, 335 B.R. 170 (10th Cir. B.A.P. 2005) (director “emeritus” who did not have any
decision making authority, was not a per se insider).
99
   See, e.g., In re Busconi, 177 B.R. 153 (Bankr. D. Mass.1995) (debtor’s wife was not an insider where
bitter divorce was pending at the time of the transfer).


                                                      62
The responses to the Item 3 questions present powerful opportunities for pre-bankruptcy
planning in terms of the timing of the filing of the case. Once any such payments or
transfers are identified, the filing date of the petition can be accelerated or delayed,
depending on the identity of the transferee and the client’s goals.


Item 4: Suits and administrative proceedings, executions, garnishments and
attachments

Item 4(a): Suits and administrative proceedings

Initial Inquiry and/or Document Review: Ask client about lawsuits; obtain and review
lawsuit documents from client to attempt to determine status of each action. Include all
lawsuits in which client is a named party, regardless of status.

Further Inquiry: If client has numerous suits, conduct a search of local court records to
ensure completeness and accuracy of basic information provided by client. Consider
searching the court records of states in which the client has lived, owns real property or
conducted business. Contact and confer with counsel who defended suits for the client.
Hire counsel in other jurisdiction(s) to conduct a lawsuit records search to confirm
accuracy of information for both this Item and listings on creditor schedules.

If the lawsuit or administrative proceedings relate to environmental laws, disclose such
matters in Item 17 of the SOFA as well or make a short notation here cross referencing
the disclosure.

Practice Pointers: If judgment has been entered in prepetition lawsuits in a judgment
lien state and client owns real estate, obtain a title search to confirm which judgments are
liens for lien avoidance purposes or advise client of this option. Do not overlook other
types of lawsuits such as administrative proceedings, divorce, child support enforcement,
criminal cases or others.

If the client is a plaintiff, list such claims on Schedule B as well. If the client is a
defendant, list the plaintiff as a creditor on Schedule D, E or F, as appropriate.


Item 4(b): Executions, garnishments and attachments

Initial Inquiry and/or Document Review: Ask about attachments, levies, garnishments
and any other prepetition judgment collection activity. Obtain and review documents
from client to determine status of lawsuits and judicial collection activity. Review
paycheck stubs, bank account statements and related documents to confirm status of
garnishments or levies.




                                               63
Further Inquiry: Update the status of prepetition collection activity as case preparation
goes through revisions.

Practice Pointers: For many clients with primarily consumer debts, the garnishments
and bank account levies are small amounts and the clients’ records are poor. Counsel
needs to balance the cost of obtaining more information with the benefit of that
information to the administration of the case. In addition, collection activity will likely
continue between the first meeting with the client and case commencement. The cost of
updating the bankruptcy forms to reflect reality on the date of filing needs to be weighed
against the general duty of a reasonable disclosure and local practice and custom should
be considered. If a minimal disclosure is made due to the cost/ benefit of obtaining
accurate information on the date of filing, this should be stated.


Item 5: Repossessions, foreclosures and returns

Initial Inquiry and/or Document Review: Ask client about all repossessions,
foreclosures or voluntary returns within the last year.

Further Inquiry: Obtain a copy of any deficiency notice or notice of disposition.

Practice Pointers: Make sure the creditor is listed correctly on Schedule D, E or F, as
the case may be. Consider if any of the information disclosed here gives rise to any
claims under § 544(b) and the applicable reach-back period under the law of the
attorney’s jurisdiction and consider this in overall case planning.


Item 6: Assignments for the benefit of creditors

Initial Inquiry and/or Document Review: Counsel should ask the client about each
Item:

   •   6(a) ABCs made within 120 days immediately preceding case commencement

   •   6(b) Property in the hands of custodian, receiver or court-appointed official
       within one year immediately preceding case commencement

Further Inquiry: If any such proceedings are identified, obtain and review all
documents in client’s possession. For Item 6(a) disclose the fact of the assignment along
with the fiduciary’s contact information and a general description of the property that is
the subject of the assignment. For Item 6(b), the same basic information should be
provided, with the property listing being derived from the order of appointment. Disclose
whether the subject of the ABC or other proceeding is a business or an individual.




                                            64
Practice Pointers: Confer with counsel for the assignee or other fiduciary and obtain
available records of the proceeding, if court-supervised. Summarize the status of the
proceeding for response to this Item.


Item 7: Gifts

Initial Inquiry and/or Document Review: Ask if, during the past year, the client made
gifts over $200 in value to a single person or charitable contributions over $100. Obtain
and review checking account registers or other records.

Further Inquiry: Obtain and review records of cash gifts including tax returns.

Practice Pointers: Check for consistency with monthly cash gifts on Schedule J.
Depending on information disclosed by client, consider implications of §§ 544(b) or 548
in terms of overall case planning.


Item 8: Losses100

Initial Inquiry and/or Document Review: Ask the client if any losses due to theft,
casualty, gambling or other circumstance have been sustained in the past year. If so,
follow up by requesting and reviewing records relating to theft losses (police reports),
casualty losses (insurance claims) and gambling losses.

Further Inquiry: Obtain and review records regarding losses directly from third parties.

Practice Pointers: Many clients are embarrassed about gambling losses and will be
reluctant to admit this information.

Insurable losses or those giving rise to a right to sue should be disclosed in Schedule B.

This Item also requests information on losses “since the commencement of the case.”
The propriety and legal basis of this is unclear and this paper makes no comment on this
issue.


Item 9: Payments related to debt counseling or bankruptcy

Initial Inquiry and/or Document Review: Ask client. Disclose dates and amounts of
payments to the attorney’s law firm, other law firms, credit counselors, the credit
counseling certificate provider, petition preparers and credit repair agencies. Examine
client’s checking account register to confirm dates and amounts.


100
   Item 8 also requests information “since the commencement of the case.” The propriety and legal basis
of this is unclear and the Best Practices Working Group makes no comment on the issue.


                                                   65
Further Inquiry: Obtain and review records regarding these payments directly from
third parties.

Practice Pointers: If a client has paid amounts to another bankruptcy lawyer in the past
12 months this could be indicative of attorney shopping. This fact pattern occurs where a
client:

   •   retains Attorney A and makes a truthful disclosure of financial or property
       matters;
   •   receives advice and counsel regarding the effect of the bankruptcy law on the
       issue;
   •   does not like the advice, counsel or consequences of the future bankruptcy filing
   •   still desires bankruptcy relief;
   •   hires Attorney B and fails to disclose the matter(s) on which Attorney A provided
       the undesired advice;
   •   files a case with Attorney B.

If Attorney A is a bankruptcy attorney, Attorney B should consider obtaining a waiver of
the attorney-client privilege, speak to Attorney A and confirm that the information that
the client provided consistent information to both attorneys, or that there is a reasonable
explanation for any discrepancy.


Item 10: Transfers

Initial Inquiry and/or Document Review: Counsel should explain in plain language
the meaning and scope of a “transfer” under § 101(54) of the Code. After explaining the
scope of this concept in detail, counsel should inquire about items transferred outright,
gifted, traded, sold, junked, disposed of in any other fashion or pledged as collateral (any
type of a mortgage transaction would fall within this definition). Counsel is seeking
information about the following:

   •   10(a): All property transferred, other than in the ordinary course, within two
       years immediately preceding case commencement

   •   10(b): Property transferred within ten years immediately preceding case
       commencement to a self-settled trust or similar device of which the client is a
       beneficiary

Ask the client to provide all documents evidencing such transfers, such as bills of sale,
closing statements, deeds, security instruments or divorce decrees.

Further Inquiry: Obtain and review records regarding these transactions directly from
third parties. If a client has filed a prior bankruptcy case within the past ten years and
documents are readily available, retrieve and review the prior schedules to see whether
items listed as assets in the prior bankruptcy are no longer in the client’s possession.


                                             66
Practice Pointers: In addition to the transactions themselves, also inquire about the
disposition of the proceeds from these transactions. The disposition of the proceeds may
lead to other matters that should be disclosed on other parts of the SoFA. Many state
fraudulent transfer statutes have a reach back period longer than the 2 years of § 548. If
your state has such a statute, expand the scope of your inquiry to match the look back
period of your state’s fraudulent transfer laws, due to the applicability of § 544(b) of the
Code. If there are troublesome transfers, consider delaying the filing of the case until the
look back period expires.

The ten-year look back is necessitated by the new provisions of a) § 548, which allows
the avoidance of certain transfers; and b) § 522(o), which provides for the denial of
homestead exemptions if the increase in value of the exemption was created within ten
years of the petition. Another BAPCPA change to § 548 is the addition of a ground to
avoid a transfer as fraudulent where the debtor made a transfer, or incurred an obligation,
to or for the benefit of an insider “under an employment contract and not in the ordinary
course of business.” Such transfers should be noted here and, if applicable, under Item
23.


Item 11: Closed bank accounts

Initial Inquiry and/or Document Review: Ask the client and request final statement
for accounts in question. Review all relevant information, documents and account
statements.

Further Inquiry: Obtain and review account statements and related information.

Practice Pointers: Counsel should confirm if the records (registers, statements and
digital, i.e., Quicken, etc.) from closed bank accounts are available or not. For a client
who has been in business, this is particularly important.


Item 12: Safe deposit boxes

Initial Inquiry and/or Document Review: Ask the client about any safe deposit boxes
in the client’s name or in which the client had property in the past year. Request that the
client provide all relevant information, including a written inventory of contents.

Further Inquiry: Review client’s written inventory and consider a personal review of
contents, including documents. Inquire about and determine the identity and value of
contents.

Practice Pointers: Although this Item includes a requirement to provide a description of
the safety deposit box’s contents, appropriate disclosure should also be made in the
schedules. For example, if the box contains a life insurance policy under which the client



                                             67
is the beneficiary, the client’s interest in the policy should be disclosed at Item 20 of
Schedule B. If the client holds in a safe deposit box property belonging to a third party,
make appropriate disclosure in Item 14 of the SoFA.


Item 13: Setoffs

Initial Inquiry and/or Document Review: Ask client about any setoffs against
accounts. Request all documents related to any setoff.

Further Inquiry: Although it is the fact of the setoff, rather than its propriety, that needs
to be disclosed, counsel may need to obtain and review documents relating to the setoff.

Practice Pointers: If the client owes child support or any debt to a government entity,
be on guard for a setoff against money the government owes the client. Tax refunds are a
common, but by far not the only, example.101

Setoffs can also give rise to preference issues. Analyze any setoff transactions for
preference implications and disclose in Item 3 if appropriate.


Item 14: Property held for another

Initial Inquiry and/or Document Review: Ask the client about property that the client
holds, controls or has physical possession of but is owned someone else. Pay particular
attention to bank or financial accounts in the client’s name but containing the funds of
children or elderly relatives and vehicles that may be titled in the client’s name but which
the client refers to as belonging to someone else, usually a child, who may also be
making the payments.

Further Inquiry: If ownership of the item is evidenced by a title certificate, review the
title certificate to verify the client does not have an ownership interest.

Practice Pointers: Pay attention to non-titled personal property (usually household
goods) that belongs to: a) a nonfiling spouse, live in, or significant other; b) other
relatives; c) teenage or adult children; d) any other person. Consider making a minimal
disclosure of all non-titled personal property in possession of the client or located at the
client’s residence that the client does not own as a prophylactic measure.




101
   See, e.g., United States v. Maxwell, 157 F.3d 1099 (7th Cir. 1998) (Small Business Administration
entitled to offset funds owed debtor based on contract awarded by U.S. Navy); Small v. County of
Hennepin (In re Small), 18 B.R. 318, 319 (Bankr. D. Minn. 1982) (allowing setoff of income and property
tax refund for delinquent child support payments); Barfknecht v. County of Hennepin, 15 B.R. 463 (Bankr.
D. Minn. 1981) (same).


                                                   68
If vehicles are titled in the client’s name but are actually owned by others, consider the
effect of state title statutes on the determination of ownership and the implications such
ownership for the case and the client’s goals.


Item 15: Prior address of debtor

Initial Inquiry and/or Document Review: Ask the client about prior residences.

Further Inquiry: Cross-check addresses from old creditor statements or loan
documents.

Practice Pointers: Cross-check with addresses on credit report(s).


Item 16: Spouses and former spouses

Initial Inquiry and/or Document Review: If the client resides or resided in a
community property state or territory,102 ask if a divorce occurred in the preceding eight
years. If so, request a copy of the decree to determine the nature of the property
settlement.

Further Inquiry: Contact divorce counsel to obtain decree or confirm necessary
information.

Practice Pointers: None


Item 17: Environmental information

Initial Inquiry and/or Document Review: Ask client about the existence of:

      •   Sites for which the client received a governmental notice of violation of
          environmental law;

      •   Sites for which the client provided notice to a governmental unit of Release of
          Hazardous Material; and

      •   Any judicial or administrative proceedings under any environmental law to which
          the client is or was a party.

For any such sites, request that the client provide all notices and related documents
including any lien notices or filings.

102
   The community property limitation derives expressly from the Statement of Financial Affairs, which,
according to the form, includes Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico,
Puerto Rico, Texas, Washington and Wisconsin.


                                                   69
Further Inquiry: Contact the governmental entities in question to confirm status and
accuracy of information provided by the client. Contact client’s counsel of record in all
such proceedings to determine status for proper disclosure.

Practice Pointers: Confirm that the governmental units or plaintiffs are provided notice
of the case by listing them on Schedule D or F. For any judicial or administrative
proceedings, request the relevant documents and disclose here and in Item 4(a).

If the client has been in any sort of business that may have these issues (gas station,
lumber mill, manufacturing, etc.) and client or counsel even remotely suspects the
existence of environmental issues, give notice to appropriate authorities anyway.


Item 18: Nature, location and name of business

Initial Inquiry and/or Document Review: Ask client and note that the information
required of this Item is particularized on the SoFA, which will guide the questioning of
the client. Obtain and review documents relating to the interests disclosed and client’s
tax returns and related forms and schedules.

Further Inquiry: Conduct an Internet search of each state in which the client has
conducted business in the past six years. Check the Secretary of State or other business
records custodian for each state. Print or PDF the information that is located. Contact
any attorneys that set up any such businesses to confirm information provided by the
client.

Attorneys should determine which of the business entities identified in the initial inquiry
are single asset real estate as defined by § 101(51B) and disclose as required in Item 18.b.

Practice Pointer: For individual clients, the Mary Kay, Tupperware or AmWay-type of
business interests would be included.


Items 19 through 35 are to be completed only where the debtor is a corporation or
partnership or, if the debtor is an individual, where the debtor is or has been, with six
years immediately preceding the commencement of the bankruptcy case, any of the
following: an officer, director, managing executive, or owner of more than 5 percent of
the voting or equity securities of a corporation; a partner, other than a limited partner, of a
partnership, a sole proprietor, or self-employed in a trade, profession, or other activity,
either full- or part-time.


Item 19: Books, records and financial statements

Initial Inquiry and/or Document Review: Ask client about:



                                              70
   •   Bookkeepers and accountants that kept or supervised the keeping of the client’s
       books within two years immediately preceding case commencement;

   •   Firms or individuals that audited the client’s books or prepared a financial
       statement of the client within two years immediately preceding case
       commencement;

   •   Firms or individuals in possession of the client’s books at the time of
       commencement; and

   •   Entities to whom the client issued a financial statement within two years
       immediately preceding case commencement.

Ask the client to provide copies of audit reports or financial statements. Ask the client to
describe specifically which records are in possession of which bookkeeper or accountant.

Further Inquiry: Confer with bookkeepers and accountants to confirm accuracy of
information provided by the client, obtain copies of financial statements and to confirm
possession of records.

Practice Pointers: Obtain and review financial statements. Contrast financial statement
information with information in bankruptcy papers for consistency. Ask the client to
clarify or explain any discrepancies, depletion of assets or other irregularities. Ask
specifically about Schedule D creditors whose debts were incurred during the past two
years. Most secured creditors require a financial statement.

If records are unavailable, damaged, inaccessible or otherwise not readily available,
document and explain the circumstances and compare those circumstances to the
standards in § 727(a)(3).


Item 20: Inventories

Initial Inquiry and/or Document Review: Ask client about prior two inventories taken
of the client’s property. Inquire regarding the name and address of the person in
possession of the records for each inventory and obtain and review those records.

Further Inquiry: Compare inventory records with information on Schedule B and
understand any disparities.

Practice Pointers: Losses, such as through theft or fire, and claims based on losses,
should be listed in Schedule B at Item 21.




                                             71
Item 21: Current partners, officers, directors and shareholders

Initial Inquiry and/or Document Review: Ask client and management regarding:

      •   If the client is a partnership, the persons who currently have an ownership interest
          in the partnership and the nature and percentage of each such interest; 103

      •   If the client is a corporation, the persons currently serving as officers or directors
          and any stockholder who owns or controls five percent or more of the client’s
          voting or equity securities.

Request, obtain and review current governing documents and recent minutes relevant to
type of entity (articles, bylaws, operating agreement, etc.).

Further Inquiry: Contact corporate counsel or counsel who created the entity to
confirm accuracy of information provided by the client.

Practice Pointers: The SoFA seems dated insofar as it omits limited liability companies
and other forms of business of increased use in recent years. Counsel should consider
making similar inquiry and disclosure for these business forms despite the SoFA’s
express reference to only partnerships and corporations.


Item 22: Former partners, officers, directors and shareholders

Initial Inquiry and/or Document Review: Ask client and management about:

      •   If the client is a partnership, each partner that withdrew from the partnership
          within the prior year and the date of each withdrawal; 104 former partners, officers
          and members if the client is a partnership (including members if the client is an
          LLC); and

      •   If the client is a corporation, officers and directors whose relationship with the
          client terminated within the prior year105 and the date of each termination. Former
          officers, directors and shareholders if the client is a corporation.

Request, obtain and review current and past governing documents and past minutes
relevant to type of entity (articles, bylaws, operating agreement, etc.) and documents
specifically relating to the withdrawal or termination.

103
    The SoFA refers to “members” of the partnership; that term, however, is more accurately used to
describe interests in limited liability corporations.
104
    See id.
105
    It is unclear why there is a comma in the phrase “list all officers, or directors whose relationship with the
corporation terminated” in Item 22 because its presence, according to the plain language, suggests that the
termination language does not apply to officers. That reading, however, is inconsistent with the apparent
purpose of Item 22.


                                                      72
Further Inquiry: Contact corporate counsel to confirm accuracy of information
provided by the client.

Practice Pointer: The SoFA seems dated insofar as it omits limited liability companies
and other forms of business of increased use in recent years. Counsel should consider
making similar inquiry and disclosure for these business forms despite the SoFA’s
express reference to only partnerships and corporations.


Item 23: Withdrawals from a partnership or distributions by a corporation

Initial Inquiry and/or Document Review: Ask client and management about all
withdrawals or distributions given or credited to insiders within the prior year. Request,
obtain and review current and past financial records of such withdrawals or distributions.

Further Inquiry: Confirm veracity of information provided by the client with client’s
accountants or bookkeepers.

Practice Pointers: The SoFA seems dated insofar as it omits limited liability companies
and other forms of business of increased use in recent years. Counsel should consider
making similar inquiry and disclosure for these business forms despite the SoFA’s
express reference to only partnerships and corporations.

In a small, closely held entity, pay careful attention to withdrawals by the owner(s),
majority or controlling shareholder, directors or officers (who may all be the same
person(s)). Withdrawals could include W-2 wages, 1099 income, shareholder or other
distributions or loan repayments.

The information gleaned from this inquiry may provide the basis for claims against the
recipients (transferees) who are insiders. These will typically be the same persons who
are making the decision to file the case on behalf of the entity and there is potential for a
clash of the insiders’ duties to the entity vs. their self interest. Do not overlook new §
548(a)(1)(B)(IV), added by BAPCPA, which adds as a ground for fraudulent transfer
avoidance a transfer made, or obligation incurred, to or for the benefit of an insider
“under an employment contract and not in the ordinary course of business.” Such
transfers or obligations should be noted here and also under Item 10.


Item 24: Tax consolidation group

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Confirm with accountant.

Practice Pointers: None.



                                              73
Item 25: Pension funds

Initial Inquiry and/or Document Review: Ask client.

Further Inquiry: Confirm.

Practice Pointers: None.




                                       74
                                             Section 10

      Form 22A: Chapter 7 Statement of Current Monthly Income and Means-Test
                                    Calculation


10.1. Introduction

Official Form 22A (formerly known as B22A) is one of three forms created after the
enactment of BAPCPA that are intended to implement new Code provisions dealing with
consumer debtors’ income and the application of the means test to debtors’ cases. As
explained in the 2005 Committee Note:

         Among the changes introduced by [BAPCPA] are interlocking provisions
         defining “current monthly income” and establishing a means test to
         determine whether relief under Chapter 7 should be presumed abusive.
         Current monthly income (“CMI”) is defined in § 101(10A) of the Code,
         and the means test is set out in § 707(b)(2). These provisions have a
         variety of applications. In Chapter 7, if the debtor’s CMI exceeds a
         defined level the debtor is subject to the means test, and § 707(b)(2)(C)
         specifically requires debtors to file a statement of CMI and calculations to
         determine the applicability of the means test presumption. In Chapters 11
         and 13, CMI provides the starting point for determining the disposable
         income that must be contributed to payment of unsecured creditors.
         Moreover, Chapter 13 debtors with CMI above defined levels are required
         by § 1325(b)(3) to complete the means test in order to determine the
         amount of their monthly disposable income, and pursuant to § 1325(b)(4),
         the level of CMI determines the “applicable commitment period” over
         which projected disposable income must be repaid to unsecured creditors.

This section discusses Form 22A, which was created for use in chapter 7 cases (with
Forms 22B and 22C designed for chapters 11 and 13, respectively).

Notably, of all the sections in this Working Paper, none have as many ambiguities,
uncertainties and unanswered questions as does Form 22A. Not only is Form 22A new, a
result of BAPCPA, but it is also grounded on statutory language that most admit is not
well crafted. As decisions emerge that interpret the various words and phrases relevant to
Form 22A, the result has been judicial conflict.106 Clear guidance remains elusive.




106
   For a discussion of various means testing issues, including where courts are divided, see David W.
Allard & Katherine R. Catanese, The Means Test: Seeing Clearly the CMI, 26 Am. Bankr. Inst. J. 12 (Feb.
2007); David W. Allard & Katherine R. Catanese, The Means Test: Part II, Deductions, 26 Am. Bankr.
Inst. J. 14 (March 2007); David W. Allard & Katherine R. Catanese, The Means Test: Part III Keeping Up
with Dismissals under BAPCPA, 26 Am. Bankr. Inst. J. 16 (April 2007).


                                                  75
10.2.     Who Must Complete Form 22A?

Official Form 22A must be completed, in whole or in part and in addition to Schedule I
and J,107 by every individual chapter 7 debtor whose debts are primarily consumer debts.
In joint cases, only one Form 22A is required.

          10.2.1. “Primarily Consumer Debts”

        As noted above, Form 22A states that the form must be completed by individuals
whose debts are “primarily consumer debts.” This limitation derives from § 707(b)(1),
which limits the entire “abuse” framework, including the means test, to this particular
class of debtors.108

      For a discussion of case law interpreting and applying the phrase “primarily
consumer debts,” see Section 1.4.3 of this Working Paper.

          10.2.2. Conversion from Chapter 13

        The courts have produced mixed results in the few cases addressing the question
of whether the means test applies to debtors whose cases were filed under chapter 13 but
were converted to cases under chapter 7. The court in In re Fox,109 held that the plain
language of § 707(b)(1), which refers to cases “filed by” chapter 7 debtors, removes
converted cases from § 707(b)’s means test provisions. On the other hand, in In re
Perfetto,110 the court found the “filed by” argument to comprise too narrow a construction
of § 707(b)(1).111

          10.2.3. Exclusion for Certain Disabled Veterans

   Part I of Form 22A implements § 707(b)(2)(D), which provides an exclusion from
means testing for some disabled veterans. Specifically, § 707(b)(2)(D) applies if:

      •   The client is a disabled veteran, as defined in 38 U.S.C. § 3741(1),112 which
          means the client is a veteran113 and either:


107
    See Section 8 for a discussion of Schedules I and J.
108
    Section 707(b)(1) states that “after notice and a hearing, the court, on its own motion or on a motion by
the United States Trustee, Trustee (or bankruptcy administrator, if any), or any party in interest may
dismiss a case filed by an individual debtor under this chapter, whose debts are primarily consumer debts,
or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that
the granting of relief would be an abuse of the provisions of this chapter.”
109
    370 B.R. 639 (Bankr. D.N.J. 2007)
110
    361 B.R. 27 (Bankr. D.R.I. 2007)
111
    See also, In re Kerr, 2007 WL 21129291, 2007 Bankr. LEXIS 2474, (Bankr. W.D. Wash. July 18,
2007).
112
    The text of 38 U.S.C. § 3741(1) is: “The term ‘disabled veteran’ means (A) a veteran who is entitled to
compensation under laws administered by the Secretary for a disability rated at 30 percent or more, or (B) a
veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of
duty.”


                                                       76
              o The disability is rated at 30 percent or more, or
              o The client’s discharge or release from active duty was for a disability that
                was either incurred or aggravated in the line of duty; and

      •   The client’s indebtedness occurred primarily during a period in which the client
          was either:
             o On active duty, as defined in 10 U.S.C. § 101(d)(1),114 or
             o Performing a homeland defense activity, as defined in 32 U.S.C. §
                 901(1).115

According to the statutes cross-referenced in § 707(b)(2)(D), the “active duty”
requirement is applicable to service members other than those serving in the National
Guard. It is not clear whether Guard members are governed solely by the “homeland
defense activity” prong of the test.

Inquiry suggestions for this exclusion are discussed under “Part I. Exclusion for Disabled
Veterans” below.

10.3.     Note on January 2008 Amendment to Form 22A

In January 2008, a substantial revision to the means test form went into effect. This
revision was premised on the IRS changes to its Allowable Living Expenses. The most
significant changes include adding a deduction for out-of-pocket health care, a deduction
for cell phone usage, and changes to the allowable transportation expenses.

In the discussion below, Lines that are affected by the January 2008 Amendment are
listed with an asterisk, i.e., *Line X, and a description of each change is provided as a
footnote to the affected Line.




113
    “Veteran” is defined at 38 U.S.C. § 101(2) as “a person who served in the active military, naval, or air
service, and who was discharged or released therefrom under conditions other than dishonorable.”
114
    “The term ‘active duty’ means full-time duty in the active military service of the United States. Such
term includes full-time training duty, annual training duty, and attendance, while in the active military
service, at a school designated as a service school by law or by the Secretary of the military department
concerned. Such term does not include full-time National Guard duty.” 10 U.S.C. § 101(d)(1).
115
    “The term ‘homeland defense activity’ means an activity undertaken for the military protection of the
territory or domestic population of the United States, or of infrastructure or other assets of the United States
determined by the Secretary of Defense as being critical to national security, from a threat or aggression
against the United States.” 32 U.S.C. § 901(1).


                                                      77
10.4.   Form 22A: Chapter 7 Statement of Current Monthly Income and Means-
        Test Calculation


                            Part I. Exclusion for Disabled Veterans


*Line 1: Veterans Declaration.116

Initial Inquiry and/or Document Review: Ask client about Award Letter and Rating
Decision from Veterans Administration for disability rating. Review client’s DD Form
214117 for dates of service and compare to when client’s debts were primarily incurred.118

Further Inquiry: None


            Part II. Calculation of Monthly Income for § 707(b)(7) Exclusion


Line 2: Marital Filing Status.

Initial Inquiry and/or Document Review: If box 2(b) is marked on the means test
form, review:
           • Address of non-filing spouse,
           • Legal separation papers, if any,
           • If divorced, a copy of the judgment of divorce.

Further Inquiry: None


Line 3: Gross Wages, Salary, Tips, Bonuses, Overtime, Commissions.

Initial Inquiry and/or Document Review: Inquire about and review federal income tax
returns or transcripts for the most recent tax year ending immediately before the
commencement of the case. Ask client for payment advices for the six-month period
ending on the last day of the calendar month immediately preceding the commencement
of the case.119

116
    The January 2008 amendment adds Section 1B, which requires the debtor to check the box if the debtor
declares that his or her debts are primarily non-consumer debts.
117
    The DD Form 214, Certificate of Release or Discharge from Active Duty, is a report of separation
issued when a service member performs active duty or at least 90 days of active duty training. The DD
Form 214 contains information normally needed to verify military service for benefits, retirement,
employment, and membership in veterans' organizations and includes the dates of entry into and separation
from active duty.
118
    See Section 10.2.3. for further explanation of the veteran exclusion.
119
    It is recommended that most records to be reviewed for Part II, except tax returns, should be reviewed
for this six-month period.


                                                   78
Further Inquiry: Review W-2s and 1099s, especially if the debtor received tips,
bonuses, or commissions. If client is calculating this amount, request detailed
calculations of the number listed on this Line.

Practice Pointers: Section 521(e)(2)(i) requires that the debtor provide to the trustee a
copy of the federal income tax return or transcript for the most recent tax year ending
immediately before the commencement of the case. Consequently, federal tax returns or
transcripts should be reviewed for the applicable period to look for support for the
client’s statements or for inconsistencies in all Part II categories.

Attorneys should note that tax transcripts provide much less information than returns do.
Attorneys should consider the detail of information that they wish to provide when
making a determination whether to submit a return or transcript.

Attorneys may also want to request payment advices after the petition date because some
trustees will verify that income has not substantially changed after the filing, which could
lead to a motion to dismiss under § 707(b)(3).


*Line 4: Income from the operation of a business, profession, or farm.120

Initial Inquiry and/or Document Review: Review federal income tax return or
transcript for the most recent tax year ending prior to the commencement of the case for a
business, profession or farm, if applicable. Review any financial statements and bank
statements for the year ending prior to the commencement of the case.

Further Inquiry: None

Practice Pointer: For reimbursement of expenses, claim the income as business income
and an offsetting business expense. It is clear that the reimbursed expense is not
traditional income. However, it might be considered part of the debtor’s gross income.
In a chapter 13, this distinction will make a difference because of the applicable
commitment period.


Line 5: Rent and other real property income.

Initial Inquiry and/or Document Review: Inquire about lease agreements, if any,
together with written notices of any rent increase. Ask the client for cancelled checks or
other business records regarding rent received, if available, and bank statements.

Further Inquiry: None


120
   The January 2008 amendment adds the following language: “If you operate more than one business,
profession, or farm, enter aggregate numbers and provide details on an attachment.”


                                                 79
Practice Pointer: Past due amounts owing to the client should be listed in Schedule B.


Line 6: Interest, dividends, and royalties.

Initial Inquiry and/or Document Review: Review bank and brokerage statements,
federal tax return or transcript.

Further Inquiry: None


Line 7: Pension and retirement income.

Initial Inquiry and/or Document Review: Ask client about payment advices or
statements showing the distributions.

Further Inquiry: Request bank statements from the client.


*Line 8: Any amounts paid by another person or entity, on a regular basis, for the
household expenses of the debtor or the debtor’s dependents, including child or
spousal support.121

Initial Inquiry and/or Document Review: Review bank statements, statement of child
support enforcement agencies, if any, regarding payments. Also ask the client for birth
dates of minor children.

Further Inquiry: Review cancelled checks or a detailed description of contributions
from other persons for household expenses. Review any judgments of divorce and any
other written support agreements and any modifications to these agreements.

Practice Pointers: Among the problems that can emerge here is the dilemma of the non-
filing spouse. To the extent a non-filing spouse’s income is not included, the United
States Trustee takes the position that a detailed statement together with supporting
documentation should be provided explaining why such income is not included. (See
Line 17 and the 2008 revisions to this Line-item requiring the basis documentation). A
non-filing spouse, however, might refuse to turn over tax returns or other information that
may not be in the debtor’s possession. Issues regarding jurisdiction and privacy have not
been addressed by the courts to date; but there are some cases that place emphasis on the
extent to which a non-filing spouse or other household member’s income can be included
in CMI.122

121
    The January 2008 amendment omits the words “spousal support” and adds the following language: “Do
not include alimony or separate maintenance payments or amounts paid by your spouse if Column B is
completed.”
122
    See In re Jewell, 365 B.R. 796, 802 (Bankr. S.D. Ohio 2007) (income of a household member that is not
used on a regular basis for household expenses is not included in the debtors’ CMI). See also In re


                                                   80
The attorney may want to advise that each spouse retain separate counsel when spouses
maintain separate financial existences.

The courts have not yet provided contours to this item regarding which financial
contributions should be included or excluded. Attorneys should consider looking first at
the “regular basis” component required by § 101(10A). Although the courts have not
defined this phrase as it is used in the means test, there is an analogous body of case law
addressing “regular income” as used in § 101(3), upon which chapter 13 eligibility
turns.123


Line 9: Unemployment compensation.

Initial Inquiry and/or Document Review: Review documents showing unemployment
compensation payment advices.

Further Inquiry: Request and review bank statements and federal income tax return or
transcript for the most recent tax year ending prior to commencement of the case.

Practice Pointer: Some courts have concluded that unemployment compensation should
not be included in the means test.124




Lightsey, 374 B.R. 377 (Bankr. S.D. Ga. 2007) (non-filing spouse’s income is included in CMI to the
extent that it is expended on a regular basis for household expenses); In re Quarterman, 342 B.R. 647, 651
(Bankr. M.D. Fla. 2006) (same); In re Travis, 353 B.R. 520, 526 (Bankr. E.D. Mich. 2006) (same); In re
Baldino, 369 B.R. 858, 861 (Bankr. M.D. Pa. 2007) (same); In re Shahan, 367 B.R. 732, 737 (Bankr. D.
Kan. 2007) (“[I]f a debtor's non-filing spouse has income, that portion of the spouse's income not dedicated
to paying household expenses is deducted from CMI.”); In re Shahan, 367 B.R. 732, 738 (Bankr. D. Kan.
2007) (non-filing spouse’s income is included in CMI to the extent that it is expended on a regular basis for
household expenses).
123
    The term “regular basis” is not defined in the Code, but, by analogy, 11 U.S.C. § 101(30) defines
“individual with regular income” as an “individual whose income is sufficiently stable and regular to
enable such individual to make payments under a plan under chapter 13.” “The benchmark for determining
whether an individual has “regular income” for purposes of section 101(30) of the Bankruptcy Code is not
the type or source of income, but “its stability and regularity.” In re Antoine, 208 B.R. 17, 20 (Bankr.
E.D. N.Y. 1997), citing In re Fischel, 103 B.R.44, 48 (Bankr. N.D.N.Y. 1989); In re Varian, 91 B.R. 653,
654 (Bankr. D. Conn. 1988); In re Campbell, 38 B.R. 193, 195 (Bankr. E.D.N.Y. 1984) (quoting In re
Cole, 3 B.R. 346, 349 (Bankr.S.D.W.Va.1980) (Congress made clear its intent to include even certain non-
employed persons, provided that income was sufficiently stable and regular)); see also In re Sigfrid, 161
B.R. 220 (Bankr. D. Minn. 1993) (determining that where debtor is unemployed, debtor must establish that
the source of the payment, such as a non-debtor spouse's income, is sufficiently stable and regular and such
a determination is made on a case-by-case basis); In re Rowe, 110 B.R. 712 (Bankr. E.D. Pa.1990) (finding
debtor's receipt of $200 a month from the debtor’s son constituted stable and regular income).
124
    See, e.g., In re Sorrell, 359 B.R. 167 (Bankr. S.D. Ohio 2007); In re Munger, 370 B.R. 21 (Bankr. D.
Mass. 2007).


                                                     81
*Line 10: Income from all other sources.125

Initial Inquiry and/or Document Review: Inquire into inheritances, buyouts not
already included, gifts, state benefits information not already accounted for, court ordered
payments received by the debtor, distributions from retirement account, sale of stocks,
any dividends not reinvested.

Further Inquiry: None

Practice Pointers: Benefits received under the Social Security Act are not included.
One-time events, such as a stock sale within the six months before filing, may constitute
a “special circumstance” under § 707(b)(2)(B)(i). If there has been an early distribution
from a retirement account, check to see whether taxes are owing on the amount
withdrawn.


                        Part III. Application of § 707(b)(7) Exclusion


Line 14: Applicable median family income.

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.126
Verify “Household Size”.

Further Inquiry: None

Comments: Attorneys need to be sure that they are reviewing the most recent median
family income tables for the debtor’s state. “Family Size” is not defined in the Code and
case law, thus far, is limited.127 Form 22A indicates that the median family income for
the applicable state and household size should be reported, and the form refers the reader

125
    The January 2008 amendment revises Form 22A as follows: “Income from all other sources. Specify
source and amount. If necessary, list additional sources on a separate page. Do not include alimony or
separate maintenance payments paid by your spouse if Column B is completed, but include all other
payments of alimony or separate maintenance. Do not include any benefits received under the Social
Security Act or payments received as a victim of a war crime, crime against humanity, or as a victim of
international or domestic terrorism.
126
    http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.
127
    The Best Practices Working Group identified only a handful of cases on point. Two decisions address
whether a pregnant debtor can include an unborn child as a member of the household, with both answering
in the negative. In re Pampas, 369 B.R. 290 (Bankr. M.D. La. 2007); In re Fleishman, 372 B.R. 64 (Bankr.
D. Ore. 2007). In In re Jewell, 365 B.R. 796 (Bankr. S.D. Ohio 2007), the court rejected both a broad
“heads on beds” approach as well as a narrow definition found in an Internal Revenue manual. Striking a
middle ground, the court looked at the dependence of the debtors’ adult daughter and her children on the
debtors’ and the daughter’s contributions to the household. The court determined that the daughter and her
children should be included within the household for purposes of the means test. The debtors’ adult son, by
contrast, was merely a “head on a bed” and would not be counted as a member of the household, In re
Ellringer, 370 B.R. 905 (Bankr. D. Minn. 2007) adopting the “heads on beds” approach.


                                                    82
to the United States Trustee website.128 The website reports the applicable family size. It
is unclear why this discrepancy exists.129


            Part IV. Calculation of Current Monthly Income for § 707(b)(2)


*Line 17: Marital Adjustment.130

Initial Inquiry and/or Document Review: Review bank statements and credit card
statements

Further Inquiry: Review payment advices for the non-filing spouse, tax return or
transcript for the non-filing spouse (if separate from debtor) for the tax year ending prior
to the commencement of the case, bank statements for any account of the non-filing
spouse, detailed statement from the non-filing spouse together with supporting
documentation regarding income that is not contributed to the household.

Practice Pointers: A non-filing spouse might refuse to turn over tax returns or other
information that might not be in the debtor’s possession. Issues regarding jurisdiction
and privacy have not been addressed by the courts to date.131




128
    See http://www.usdoj.gov/ust.
129
    See In re Plumb, 373 B.R. 429 (Bankr. W.D.N.C. 2007), addressing this discrepancy.
130
    The January 2008 amendment adds the following language: “Specify in the Lines below the basis for
excluding the Column B income (such as payment of the spouse’s tax liability or the spouse’s support of
persons other than the debtor or the debtor’s dependents) and the amount of income devoted to each
purpose. If necessary, list additional adjustments on a separate page.” Additionally, this amendment
includes a space for the debtor to specify the basis and amounts for the marital adjustment.
131
    For a discussion of application of the marital deduction, see In re Travis, 353 B.R. 520 (Bankr. E.D.
Mich. 2006). But see Stapleton v. Baldino (In re Baldino), 369 B.R. 858 (Bankr. M.D. Pa. 2007)
(questioning whether the existence of a non-filing spouse’s significant earnings necessarily raises the
debtor’s standard of living).


                                                    83
              Part V. Calculation of Deductions Allowed Under § 707(b)(2)
      Subpart A: Deductions Under Standards of the Internal Revenue Service (IRS)


Line 19: National Standards: food, clothing, household supplies, personal care, and
miscellaneous.132

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.133

Further Inquiry: None

Practice Pointer: It is unclear whether “gross monthly income,” which is used for this
standard, is the same as “current monthly income.”


*Line 20A: Local Standards: housing and utilities; non-mortgage expenses.134

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.135

Further Inquiry: None

Practice Pointer: The United States Trustee’s website states “[t]he Housing and
Utilities Standards are published by the IRS by state (including Guam, the Northern
Mariana Islands, Puerto Rico, the Virgin Islands, and the District of Columbia), county,

132
    The January 2008 amendment revises the April 2007 form as follows:
          19A. National Standards: food, clothing, household supplies, personal care, and
          miscellaneous and other items. Enter in Line 19A the “Total” amount from IRS National
          Standards for Food, Clothing and Other Items for the applicable household size.
          Allowable Living Expenses for the applicable family size and income level.” (This
          information is available at www.usdoj.gov/ust/ or from the clerk of the bankruptcy court.)
The January 2008 amendment also includes a section 19B, which states:
          National standards: health care. Enter in Line a1 below the amount from IRS National
          Standards for Out-of-Pocket Health Care for persons under 65 years of age, and in Line
          a2 the IRS National Standards for Out-of-Pocket Health Care for persons 65 years of age
          or older. (The information is available at www.usdoj.gov/ust/ or from the clerk of the
          bankruptcy court.) Enter in Line b1 the number of members of your household who are
          under 65 year of age, and enter in Line b2 the number of members of your household
          who are 65 years of age or older. (The total number of household members must be the
          same as the number stated in Line 14b.) Multiply Line a1 by Line b1 to obtain a total
          amount of household members under 65, and enter the result in Line c1. Multiply Line
          a2 by Line b2 to obtain a total amount for household members 65 and older, and enter the
          result in Line c2.
Line 19B then provides a chart for the debtor to complete regarding the above amounts.
133
    See http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.
134
    The January 2008 amendment revises the April 2007 form by changing the words “family size” to
“household size”.
135
    See http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.


                                                   84
and family size. For purposes of these bankruptcy forms, the Housing and Utilities
Standards are provided in two components -- non-mortgage expenses and mortgage/rent
expenses.”136 It is unclear what is meant by “non-mortgage” expenses.


*Line 20B: Local Standards: housing and utilities; mortgage/rent expense.137

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.138
Verify county of residence for debtor, “family size” of debtor, if the debtor has “Non-
Mortgage” or “Mortgage” expenses by reviewing mortgage, property tax bills,
homeowner’s insurance payment information, cancelled checks regarding monthly
mortgage/rent payment and utilities payments. Prepare statement indicating client’s
intent to surrender or redeem property or to reaffirm the underlying debt, if applicable.

Further Inquiry: None

Practice Pointer: It is unclear if debtors are entitled to take this deduction when the
debtor does not pay rent/mortgage or utilities expense.139


Line 21: Local Standards: housing and utilities; adjustment.

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.140

Further Inquiry: None

Practice Pointer: This Line anticipates that the debtor may challenge the process used
to compute the household and utilities adjustment.141




136
    See http://www.usdoj.gov/ust/eo/bapcpa/20071015/meanstesting.htm.
137
    The January 2008 amendment revises the April 2007 form by changing the words “family size” to
“household size.”
138
    See http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.
139
    See, e.g., In re Farrar-Johnson, 353 B.R. 224 (Bankr. N.D. Ill. 2006) (§ 1325(b)(3) allows housing
deduction for above-median income debtors even where debtors have no actual housing expense).
140
    See http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.
141
    See In re Skaags, 349 B.R. 594, 597 (Bankr. E.D. Mo. 2006), where the debtors were limited to the IRS
standard housing expense even though their actual rent amount exceeded the IRS standard.


                                                   85
*Line 22: Local Standards: transportation; vehicle operation/public transportation
expense. 142

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.143

Further Inquiry: None

Practice Pointer: The debtor is entitled to this expense regardless of whether the debtor
pays the expense of operating a vehicle or uses public transportation.


*Line 23: Local Standards: transportation ownership/lease expense; Vehicle 1.144

Initial Inquiry and/or Document Review: Review the Census Bureau, IRS Data and
Administrative Expenses Multipliers found on the United States Trustee’s website.145

Review title to debtor’s vehicle (unless held by the secured creditor) or lease verifying
that the vehicle is in the debtor’s name, bills indicating the amount the debtor pays each
month, statement of intention regarding surrender, redemption or reaffirmation, if
applicable.

Further Inquiry: None




142
    The January 2008 amendment renumbers Line 22 to Line 22 A and adds the following language:
          If you checked 0, enter on Line 22A the “Public Transportation” amount from the IRS
          Local Standards: Transportation”. If you checked 1 or 2 or more, enter on Line 22A the
          “Operating Costs” amount from IRS Local Standards: Transportation for the applicable
          number of vehicles in the applicable Metropolitan Statistical Area or Census Region.
          (These amounts are available at www.usdoj.gov/ust/ or from the clerk of the bankruptcy
          court.)
Additionally, the January 2008 amendment adds a Line 22B, which states:
          Local Standards: transportation; additional public transportation expense. If you pay the
          operating expenses for a vehicle and also use public transportation, and you contend that
          you are entitled to an additional deduction for your public transportation expenses, enter
          on Line 22B the “Public Transportation” amount from IRS Local Standards:
          Transportation. (The amount is available at www.usdoj.gov/ust/ or from the clerk of the
          bankruptcy court.
143
    See http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.
144
    The January 2008 amendment revises the April 2007 form as follows:
          Enter, in Line a below, the “Ownership Costs” for “One Car” from the IRS Local
          Standards:     Transportation Standards, Ownership Costs, First Car (available at
          www.usdoj.gov/ust/ or from the clerk of the bankruptcy court); enter in Line b the total of
          the Average Monthly Payments for any debts secured by Vehicle 1, as stated in Line 42;
          subtract Line b from Line a and enter the result in Line 24. Do not enter an amount less
          than 0.
145
    See http://www.usdoj.gov/ust/eo/bapcpa/meanstesting.htm.


                                                     86
Practice Pointers: The case law is mixed on whether a debtor is entitled to this
deduction when the debtor owns the vehicle free and clear146 or stated an intent to
surrender the vehicle postpetition.147

The debtor is permitted to subtract “the Average Monthly Payment for any debts secured
by vehicle 1, as stated in Line 42” from the IRS Transportation Standard expense.
However, § 707(b)(2)(A)(iii) defines “Average Monthly Payment” as “the total of all
amounts contractually due to each secured creditor in the 60 months following the filing
of the bankruptcy case, divided by 60” (emphasis added). Line 23 seems to contemplate a
past or present expense, whereas Line 42 seems to contemplate a future expense.
Although there seems to be an inconsistency, there have been no cases directly
addressing this issue.148

It should further be noted that it is unclear whether the Average Monthly Payment should
be listed as the amortized amount or the amount as indicated in the contract between the
debtor and the secured party.


*Line 24: Local Standards: transportation ownership/lease expense; Vehicle 2.149

Initial Inquiry and/or Document Review: Same as Line 23.

Further Inquiry: None

Practice Pointers: Same as Line 23.




146
     See In re Ross-Tousey, 368 B.R. 762 (E.D. Wis. 2007); In re Barraza, 346 B.R. 724 (Bankr. N.D. Tex.
2006); In re Harris, 353 B.R. 304 (Bankr. E.D. Okla. 2006); In re Oliver, 350 B.R. 294 (Bankr. W.D. Tex.
2006); In re Pampas, 369 B.R. 290 (Bankr. M.D. La. 2007); In re Hardacre, 338 B.R. 718, 727-28 (Bankr.
N.D. Tex. 2006), In re Hartwick (Fokkena v. Hartwick), 373 B.R. 645 (D. Minn. 2007), where a deduction
for a vehicle owned free and clear was not permitted. But see In re Fowler, 349 B.R. 414 (Bankr. D. Del.
2006);, In re Wilson, 356 B.R. 114 (Bankr. D. Del. 2006), In re Zak, 361 B.R. 481 (Bankr. N.D. Ohio
2007), In re Billie, 367 B.R. 586 (Bankr. N.D. Ohio 2007), In re Zaporski, 366 B.R. 758 (Bankr. E.D.
Mich. 2007), and In re Prince, 2006 WL 3501281, 2006 Bankr. LEXIS 3404 (Bankr. M.D.N.C. Nov. 30,
2006) where a deduction for a free and clear vehicle was permitted.
147
     See In re Singeltary, 354 B.R. 455 (Bankr. S.D. Tex. 2006), where debtors were not permitted to take a
deduction for a vehicle the debtors had surrendered prior to the motion date. But see also In re Skaags, 349
B.R. 594, 597 (Bankr. E.D. Mo. 2006), where the debtors were not permitted to take a deduction for a
vehicle the debtors intended to surrender.
148
    See In re Vesper, 371 B.R. 426, 432 (Bankr. D. Alaska 2007) (court noted this distinction by stating that
“[i]f the actual car payment exceeds the allowable expense amounts on Lines 23 and 24, the debtor may
claim such excess as a deduction on Line 42 of the form, as a ‘future payment on secured claims’”).
149
     See n.144 supra regarding the January 2008 amendment to this Item, which is the same as the
amendment to Line 23.


                                                     87
Line 25: Other Necessary Expenses: taxes.

Initial Inquiry and/or Document Review: Review payment advices, federal, state and
local tax returns or transcripts for the most recent tax year ending prior to the
commencement of the case including business tax returns or transcripts, if applicable.

Further Inquiry: None

Practice Pointers: The attorney should consider reviewing the debtor’s payment advices
to ensure that the debtor is not overwitholding taxes. This could be argued as grounds for
a motion to dismiss pursuant to § 707(b)(3).

If the client has no payment advices, the attorney should get a declaration, under oath, to
that effect. The declaration can be sent to the trustee in lieu of the payment advices.

Be sure to inquire whether the client cashed in a tax privileged account, such as an IRA,
which is not uncommon when people are in financial distress. If so, determine whether
taxes remain owing.


Line 26: Other Necessary Expenses: mandatory payroll deductions.

Initial Inquiry and/or Document Review: Review payment advices and 401(k)
enrollment information, if applicable.

Further Inquiry: Inquire into whether the debtor has employment manuals or a
statement from employer regarding mandatory deductions.

Comments: None

Practice Pointer: The client may have significant concerns regarding an employer’s
knowledge of an upcoming bankruptcy filing. Although the attorney should be clear that
the fact of a bankruptcy cannot be kept hidden, the attorney may need to tailor the case to
the client’s unique concerns, especially in light of judicial interpretations of the Code’s
anti-discrimination clause150 that limit that provision’s protections to postpetition
discriminatory conduct. 151




150
   11 U.S.C. § 525(b).
151
   See, e.g., In re Kanouse, 168 B.R. 441 (S.D. Fla. 1994) (debtor terminated prepetition was not protected
because § 525(b) applies only debtors and former debtors). See also White v. Kentuckiana Livestock Mkt.,
Inc., 397 F.3d 420 (6th Cir. 2005) (strictly construing “solely because” language of § 525(b)).


                                                    88
Line 27: Other Necessary Expenses: life insurance.

Initial Inquiry and/or Document Review: Review bills for term life insurance,
cancelled checks/Bank statements/Credit card statements showing subtraction of life
insurance premiums.

Further Inquiry: None

Practice Pointers: This deduction is permitted only for amounts actually paid for the
debtor; policies for dependents may not be deducted.

Form 22A distinguishes term life from whole life or other forms of life insurance,
allowing a deduction only for the former. This distinction is not in the statute and the
reason for its inclusion on the form is not clear.


Line 28: Other Necessary Expenses: court-ordered payments.

Initial Inquiry and/or Document Review: Review judgments, settlement agreements,
releases, other court orders, judgments of divorce, property settlements, any other written
support agreements and any modifications to these agreements, statement of child support
enforcement agencies, if any, and garnishments

Further Inquiry: None

Practice Pointer: Support arrearages should not be included here. Arrearages are
instead deducted as priority debts at Item 44, with the monthly amount averaged out over
60 months.


Line 29: Other Necessary Expenses: education for employment or for a physically
or mentally challenged child.

Initial Inquiry and/or Document Review: Review bills or invoices for education as a
condition of employment, bills or invoices for education of physically or mentally
challenged dependant child, and doctor’s proof of physically or mentally challenged
child.

Further Inquiry: Review employment manual or statement from employer indicating
mandatory education requirements.


Line 30: Other Necessary Expenses: childcare.

Initial Inquiry and/or Document Review: Review bills or invoices for day care
expenses, bills, invoices, or cancelled checks for babysitting expenses or a statement



                                            89
from the debtor indicating the average monthly cost for babysitting, judgments of
divorce, child support orders.

Further Inquiry: None

Practice Pointer: This deduction is applicable only to childcare; education expenses do
not qualify. It is unclear how to differentiate between applicable and inapplicable
deductions when a young child, not yet eligible to attend public school, attends a
Montessori or similar program that is intended as education rather than childcare.


Line 31: Other Necessary Expenses: health care.

Initial Inquiry and/or Document Review: Review bills or receipts, cancelled checks for
health care expenses not reimbursed by insurance or paid by a health savings account.

Further Inquiry: Review health Insurance policy.

Practice Pointer: Deduction cannot include payments made for health insurance or
health savings accounts as listed on Line 34.


*Line 32: Other Necessary Expenses: telecommunication services.152

Initial Inquiry and/or Document Review: Review bills, invoices, cancelled checks for
cell phones, pagers, call waiting, caller ID, special long distance, and internet service
actually paid by the debtor.

Further Inquiry: None

Practice Pointers: The debtor cannot include an amount previously deducted. The
debtor cannot include an amount for basic home telephone service because this expense
is included in the IRS Local Standard for Housing and Utility.153

Form 22A’s list of possible telecommunication expenses is not in the statute, but is likely
derived from IRS Manual 5.15.1.10 or other manuals as in effect on the date of the order
for relief as indicated in § 707(b)(2)(A)(ii)(I).154

152
    The January 2008 amendment revises the April 2007 form as follows: “Enter the total average monthly
amount that you actually pay for telecommunication services other than your basic home telephone and cell
phone service – such as pagers, call waiting, caller I.D., special long distance, or Internet service – to the
extent necessary for your health and welfare or that of your dependents. . . .”
153
    See In re Stimac, 366 B.R. 889 (Bankr. E.D. Wis. 2007) and In re Lara, 347 B.R. 198 (Bankr. N.D. Tex.
2006), where the debtors were allowed a deduction in addition to the standard deduction as an “other
necessary expense” for a cellular telephone expense of $183.00 per month and a monthly expense of
$26.00 for high speed internet access. See also In re Haley, 354 B.R. 340 (Bankr. D. N.H. 2006).
154
    But see In re Jewell 365 B.R. 796 (Bankr. S.D. Ohio 2007), which suggests that the IRS standards are
not determinative.


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The telecommunication expense can only be taken for the debtor and the dependents of
the debtor.155

Case law suggests that the debtor must provide documentation to the case trustee to
support the debtor’s deduction for telecommunication expense.156


         Part V. Subpart B: Additional Expense Deductions Under § 707(b)157


*Line 34: Health Insurance, Disability Insurance, and Health Savings Account
Expenses.158

Initial Inquiry and/or Document Review: Review payment advices showing the
monthly expense withdrawn from the debtor’s pay check for health insurance, disability
insurance, or health savings accounts, invoices/cancelled checks for amounts paid by the
debtor for health insurance, disability insurance, or health savings accounts.

Further Inquiry: None

Practice Pointer: Debtor can deduct payments made for the debtor’s spouse and
dependents.


Line 35: Continued contributions to the care of household or family members.

Initial Inquiry and/or Document Review: Review cancelled checks, credit card
statements, bank statements showing the reasonably necessary159 payments for the care
and support of an elderly, chronically ill, or disabled member of the debtor’s household
or member of immediate family who is unable to pay for such expenses.



155
    See In re Plumb, 373 B.R. 429 (Bankr. W.D.N.C. 2007), where the court held that the debtors were
permitted to take a telecommunication deduction for themselves and their dependents, but not for the entire
household of ten. See also In re Oltjen, 2007 WL 2329695, 2007 Bankr. LEXIS 2761 (Bankr. W.D. Tex.
Aug. 13, 2007).
Bankr. W.D. Tex. Aug. 13, 2007), where the debtor was not permitted to take a deduction for her sister’s
cell phone expense.
156
    In re Renicker, 342 B.R. 304 (Bankr. W.D. Mo. 2006), In re Johns, 342 B.R. 626, 628 (Bankr. E.D.
Okla. 2006).
157
    See 11 U.S.C. § 707(b)(2)(A)(ii)(II).
158
    The January 2008 amendment revised the April 2007 form as follows: “List the monthly expenses in
the categories set out in Lines a-c below that are reasonably necessary for yourself, your spouse, or your
dependents and total the average monthly amounts that you actually pay for yourself, your spouse, or your
dependents in the following categories …”
159
    “Reasonably necessary” is a statutory requirement. 11 U.S.C. § 707(b)(2)(A)(i)(II). See In re Hicks,
370 B.R. 919 (Bankr. E.D. Mo. 2007).


                                                    91
Further Inquiry: Obtain a doctor’s letter indicating that the care of the household
member or immediate family member is reasonable and necessary, statement signed by
the household member or family member indicating that that household member or
family member is unable to pay for care.


Line 36: Protection against family violence.

Initial Inquiry and/or Document Review: Ask client. Counsel should make a judgment
based on the client’s word and, if need be, ask for an in camera hearing so the client can
provide relevant details while the court maintains the required confidentiality.160

Further Inquiry: None

Practice Pointer: Although unlikely because of the peculiar circumstances associated
with family violence, if there are expenses to be listed here, counsel should review the
Family Violence Prevention and Services Act.161 This Act, along with unidentified
“other federal law,” is the basis for this deduction.


Line 37: Home energy costs.

Initial Inquiry and/or Document Review: Review invoices or bills for home energy
costs for the period the client is claiming the additional monthly amount.

Further Inquiry: Obtain a written explanation from the debtor explaining that the
amount is reasonable and necessary together with other supporting documentation, if any.

Practice Pointer: The debtor is required to provide documentation to the case trustee
demonstrating that the additional amount claimed is reasonable and necessary.


Line 38: Education expenses for dependent children less than 18.

Initial Inquiry and/or Document Review: Obtain invoices or bills establishing the
average monthly expenses actually incurred by the debtor.

Further Inquiry: None

Practice Pointers: The debtor is required to provide documentation to the case trustee
demonstrating that the amount claimed is reasonable and necessary and not already


160
    Section 707(b)(2)(A)(ii)(II) requires the court to maintain the confidentiality of expenses incurred “to
maintain the safety of the debtor and the family of the debtor as identified under section 309 of the Family
Violence Prevention and Services Act, or other applicable federal law.”
161
    10 U.S.C. § 10421.


                                                     92
accounted for by the IRS standards. The deduction is limited to $125.00 per child and the
child must be less than 18 years old.


Line 39. Additional food and clothing expense.

Initial Inquiry and/or Document Review: Review documentation from the client
regarding monthly food and clothing expense to see if it exceeds the allowable deduction.
If it does, obtain all supporting documentation from the client since it is required by
statute, and inquire into whether the expense is reasonable and necessary.

Further Inquiry: None


Line 40: Continued charitable contributions.

Initial Inquiry and/or Document Review: Review cancelled checks, bank statements,
and credit card statements showing the contribution and any receipts for donations.

Further Inquiry: It may also be necessary to review federal and state income tax
returns or transcripts.

Practice Pointer: “Continued” is not defined by the Code.162 “Charitable contribution”
is defined under 26 U.S.C. § 170(c)(1)-(2).


                    Part V. Subpart C: Deductions for Debt Payment163


*Line 42: Future payments on secured claims.164

Initial Inquiry and/or Document Review: See Lines 20B and 23. Review bills or
invoices for mortgage and vehicles.

Further Inquiry: None

Practice Pointers: Recent case law is mixed as to whether 401(k) loan repayments may
be “payments on account of secured debt” under 11 U.S.C. § 707(b)(2)(A)(iii).165

162
    See In re Bender, 373 B.R. 25 (E.D. Mich. 2007), holding that the debtors were entitled to take a
charitable deduction for a $260 per month charitable contribution that had been paid for the three years
prior to filing, but not for the $100 postpetition increase the debtors claimed on the debtor’s means test.
163
    See 11 U.S.C. § 707(2)(A)(iii).
164
    The January 2008 amendment revises the April 2007 form by requiring the debtor to check whether the
secured payment includes taxes and insurance.
165
    See In re Barraza, 346 B.R. 724 (Bankr. N.D. Tex. 2006); In re Lenton, 358 B.R. 651 (Bankr. E.D. Pa.
2006); In re Haley, 354 B.R. 340 (Bankr. D. N.H. 2006). But see Eisen v. Thompson, 370 B.R. 762 (N.D.
Ohio 2007); McVay v. Otero, 371 B.R. 190 (W.D. Tex. 2007).


                                                    93
With regard to a debtor taking a deduction for mortgage payments when the debtor did
not intend to reaffirm, see In re Nockerts.166

With regard to a debtor taking a deduction for mortgage payments when the property has
been foreclosed, see In re Brandenburg.167

Several courts have allowed a debtor to take a deduction for a vehicle or mortgage
deduction for collateral the debtor intends to surrender,168 while others have disallowed
such a deduction.169

The debtor is permitted to subtract “the Average Monthly Payment for any debts secured
by vehicle 1, as stated in Line 42” from the IRS Transportation Standard expense.
However, 11 U.S.C. § 707(b)(2)(A)(iii) defines “Average Monthly Payment” as “the total
of all amounts contractually due to each Secured Creditor in the 60 months following the
filing of the bankruptcy case, divided by 60” (emphasis added). Line 23 seems to
contemplate a past or present expense, whereas Line 42 seems to contemplate a future
expense. Although there seems to be an inconsistency, there have been no cases directly
addressing this issue.170

It should also be noted that it is unclear whether the Average Monthly Payment should be
listed as the amortized amount or the amount as indicated in the contract between the
debtor and the secured party.




166
    In re Nockerts, 357 B.R. 497 (Bankr. E.D. Wis. 2006).
167
    In re Brandenburg, 2007 Bankr. 2007 WL 1459402, 2007 Bankr. LEXIS 1781, (Bankr. E.D. Wis. May
15, 2007).
168
    See In re Longo, 364 B.R.161 (Bankr. D. Conn. 2007) (where the court allowed a deduction for
collateral that the debtor intended to surrender), In re Walker, 2006 WL 1314125, 2006 Bankr. LEXIS 845,
(Bankr. N.D. Ga. May 1, 2006) (where the court held that the “[d]ebtors are entitled to deduct from CMI
the average payments on debts secured by surrendered collateral”), In re Singletary, 354 B.R. 455 (Bankr.
S.D. Tex. 2006) (where the court held that merely declaring an intent to surrender collateral on the debtor’s
statement of intention is not enough to preclude the debtor from deducting those payments, but, the court
added that the debtors would not be permitted to deduct these payments if the collateral had already been
surrendered).
169
    See In re Skaggs, 349 B.R. 594 (Bankr. E.D. Mo. 2006) (where debtors were not permitted to take a
deduction for a second vehicle that they intended to surrender), In re Harris, 353 B.R. 304 (Bankr. E.D.
Okla. 2006) (where debtors were not permitted to deduct monthly payments for secured debt when they
intended to surrender the collateral), In re Love, 350 B.R. 611 (Bankr. M.D. Ala. 2006) (where “payments
on account of secured debts” in chapter 13 plan did not include payments for collateral the debtors intended
to surrender).
170
     See In re Vesper, 371 B.R. 426, 432 (Bankr. D. Alaska 2007) (court noted this distinction by stating
that “[i]f the actual car payment exceeds the allowable expense amounts on Lines 23 and 24, the debtor
may claim such excess as a deduction on Line 42 of the form, as a ‘future payment on secured claims’”).




                                                     94
Line 43: Other payments on secured claims.

Initial Inquiry and/or Document Review: See Lines 20B and 23. Review any notices
of foreclosure or repossession, judgment liens, and documents supporting purchases on
credit cards that grant a PMSI to the issuer.

Further Inquiry: None

Practice Pointers: It is unclear whether the payments to be listed on Line 43 should be
averaged over a 60-month period. It also unclear as to whether future or past payments
on secured claims should be included on Line 43.

It has been noted that the means test is “aimed at capturing a ‘snapshot’ of the debtor's
financial state as of the date the petition is filed, rather than at constructing a forward-
looking analysis of the debtor's financial situation.”171

This Item might require that the attorney balance the information needed to complete
Form 22A and the client’s resources. Tracking credit card agreements, payments and
purchases, for example, can be time consuming and expensive. If the client is below
median, or otherwise does not have apparent problems with the means test, such
expenditure could prove needlessly burdensome to the client.


*Line 44: Payments on priority claims.172

Initial Inquiry and/or Document Review: Review any statements from child support
enforcement agencies, if any. Review relevant tax records, such as returns, transcripts or
notices from taxing authorities.

Further Inquiry: If child support listed as a priority: judgments of divorce, property
settlements, any other written support agreements and any modifications to these
agreements.

Practice Pointers: “Priority claims” are defined by § 507(a) and do not include amounts
coming due after the petition date.

Priority claims are required to be amortized over 60 months.173

Postpetition amounts due that have the same character as priority claims, such as future
support obligations, are to be listed at Item 28.

171
    Fokkena v. Hartwick, 373 B.R. 645 (D.Minn. 2007).
172
    The January 2008 amendment revises the April 2007 form as follows: “Payments on prepetition priority
claims. Enter the total amount, divided by 60, of all priority claims, such as priority tax, child support and
alimony claims, for which you were liable at the time of your bankruptcy filing. Do not include current
obligations, such as those set out in Line 28.”
173
    11 U.S.C. § 707(b)(2)(A)(iv).


                                                     95
Claims listed here should also be included on Schedule E.

Attorneys should be careful not to confuse priority support with nonpriority property
settlements. Both are nondischargeable in a chapter 7 case, but only support debts are
entitled to priority.


                            Part VII. Additional Expense Claims


Line 56: Other Expenses.

Initial Inquiry and/or Document Review: Review bills or invoices for other expenses,
and cancelled checks.

Further Inquiry: Obtain a statement from the debtor indicating the purpose of expense
and that the expense is necessary for the health and welfare of the debtor or the debtor’s
family. Also review bank statements and credit card statements showing the expense
paid by the debtor.

Practice Pointer: Must be for the health and welfare of the debtor or the debtor’s
family.174




174
  See In re Oliver, 350 B.R. 294 (Bankr. W.D. Tex. 2006) and In re Lara, 347 B.R. 198 (Bankr. N.D. Tex.
2006).


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DOCUMENT INFO
Description: Schedule F Creditors Holding Unsecured Nonpriority Claims Updated for 12 document sample